Filing tax for retired pensioner from India in US as a Permanent Resident

[MVLUSnr]

I am a retired pensioner from India with sole income coming from my pension from Indian govt. & some dividends/interest from Indian Stocks, the total amount of which is around under 12K $. I was trying to file my taxes using form 1040-SR since I am over 65, but I am not clear on where these two income sources need to be reported under since I do not have W2's like here. Any inputs are helpful.

[pk]

@MVLUSnr , need more info on the type of pension you are getting i.e.  is this  from a providend fund type of account or  pension from Central / State  govt employment ?   I ask because  most public  funds based  pension  ( i.e. based on govt. employment )  is usually taxable only by the  distributing  govt. and not by the US  ( US-India Tax treaty article 19 I think).

What about your investment income  you refer to in your post -- bank deposit / FD or what ?  Are these also in India ?  Are your investments through a broker in India  or  in the USA ?

Is this your first year filing in this scenario ?  If not how did you file 2023 ?

Which state are you a resident of ?

Is this your first year filing US return ?  Or first year with Indian Pension ?   If not how did you file 2023 ?

I will circle back  once I hear from you --yes ?

Namaste ji

pk

[MVLUSnr]

Hi PK,

As I mentioned in my question, I am getting my pension from Indian Goverment (Central to be specific). And I filed taxes to Indian Govt, which is same as what you noted as per Article 19 of treaty. 

Also, as I mentioned, the dividend/interests are from Indian Stocks (all are in India - Bank Account/MF/FD, nothing from USA). I don't have any kind of income (passive/active) in USA so no accounts here whatsoever.

First year of filing US tax returns. Residing in state of TX with my daughter.

Thanks

[pk]

@MVLUSnr , 

For the Govt. Pension:

What you are trying to here 

(a) recognize the pension amount as part of your world in come  ( US persons are  taxed by the US on world income irrespective  of where the source is )

(b) Recognize the  Tax treaty article and therefore exclude this income from US taxes.

The ideal way to do this would be to include this  as "other " income"  -- you need it to show up on Schedule-1 with notation  " Foreign Govt. Pension India "  and the amount.   Then  on the adjustment section    of Schedule-1 under "other" --- ( Party II, line z)  -- Other adjustments,   the same pension amount with notation --- "Article 19 of  US-India Tax Treaty".

However, because of the way TurboTax has been implemented , the only way to achieve this   is to enter   under "other income " --  once the pension full amount as a positive number  with notation " Govt of India Pension" and then another  with the same number as negative amount with the notation " Excluded per Article 19 of US-India Tax Treaty ".  It is a clutzy way  but it does the job.

On your  investment income from India :

You need to enter these incomes  under the proper category , just as if these were domestic  sourced -- Under personal income tab, then " I will choose what I work on " then from the drop down list of income categories.

If India taxes these incomes  ( per your settled ITR ) , then you have to allocate  foreign taxes paid  on these  incomes ( doubly taxed ) and claim foreign tax credit   per the  "elimination / mitigation of double taxation " clause of the tax treaty. 

This would mean  ( depending on the amount of tax and your filing status ) you may have to file a form 1116.  You access this  under  Deduction and Credits tab and selecting " I will choose what I work on " and then down towards the end  " Foreign Tax credit".   Note that the credit allowable  for the tax year is the lesser of  US tax on this  income and that  actually paid to India.

Does this help ?  Do you need more help on this ?

[MVLUSnr]

Hi @pk,

Thanks for your response. Please find my answers & some additional questions

1. Regarding Pension - a) Yes I am trying to recognize & report my Indian govt. pension as part of my world income, since it is one of my income sources & b) Yes I am trying to exclude this income from US taxes, again to avoid double taxation since I already paid taxes on it to the Indian govt. & as per treaty agreement. c) When I try to enter the pension under "Less Common Income"->"Foreign Earned Income and Exclusion", since that is the only place it allows me to enter foreign pension $ amount only but doesn't let me specify what it is as from say "Govt of India Pension". I entered in that section as I did not find "other income" section as you noted. I am using turbo tax online deluxe edition, would I need some other product is it?

2. Regarding investment income from India - a)You noted --- You need to enter these incomes under the proper category , just as if these were domestic sourced -- Under personal income tab, then " I will choose what I work on " then from the drop down list of income categories. ----- I see under "Investments and Savings" only 1099-INT/1099-DIV/1099-B, don't see anything related to foreign stocks/mf to enter, since none of these forms are relevant to me as I dont have any of those? So again do i need to use a different product or look at a different section.

[pk]

@MVLUSnr 

First there is NO special category of income called Foreign source.  Thus 

For recognizing / reporting income

1.  Enter  your   Interest and Dividend income without regard to sourcing i.e.  Foreign source  Interest  ( from Indian Banks / financial institutions  ) are entered just as if these were domestic sourced.  Ditto for Dividend incomes.

2. For claiming foreign tax credit , you do this  under  " Deductions and Credits " tab where there is a  "Foreign Tax credit " section.

3.  Since you do not have  Foreign Earned Income , you do not enter anything  for  " Foreign Earned Income Exclusion " section.

4. For your  "Foreign Pension"  from public funds   and per  US-India Tax Treaty, please follow the  "clutzy" method I have described in my earlier post.

Does this help answer your query ?   If you need more help , please add here  ( if of general interest ) or PM me if the topic/material is specific  to your situation  -- just no PII, please .

Namaste ji

pk