Pension benefits is an essential part of ones pay package which is generally provided by the employers over the world. It can be as an obligation imposed by statutory requirements or as a voluntary employee welfare initiative. Pensions can be by private firms or government aided where the contributions can be either by the employer and employee or only employer-funded plans. Often, pension plans extend the annuity benefit to employees after their retirement, but some may offer a lump sum pay out option. Although the type of plans or their benefits might differ, remember that pension too falls under the taxation laws. The taxes for overseas pensions depends on the residential status of the recipient and the place of accrual and receipt of pension.
The residential status of the individual determines his tax ability on any income. This is determined by the person’s physical presence in India during the current year and the past periods. A person who is a resident and ordinarily resident (ROR) is taxed on his worldwide income while one who qualifies to be a resident but not-ordinarily resident (RBNOR) and non-resident (NR), is taxed on income accrued or deemed to accrue in India or income received or deemed to be received in India.
As pension is a financial security for the future retirement purpose, it is of utmost importance to be aware of future tax implications to avoid unpleasant surprises later.