r2i forum

Hi everyone,

Question 1: Does USC/GC working in India need to pay US taxes on Indian EPF (Employee Provident Fund)? Should this be declared in FBAR?

Article 20 in the DTAA (see below) seems to indicate that EPF is not taxable by US. Getting conflicting views from CAs here.

https://www.irs.gov/pub/irs-trty/india.pdf: "ARTICLE 20: Private Pensions, Annuities, Alimony and Child Support
1. Any pension, other than a pension referred to in Article 19 (Remuneration and Pensions in Respect of Government Service), or any annuity derived by a resident of a Contracting State fromsources within the other Contracting State may be taxed only in the first-mentioned Contracting state.

2. Notwithstanding paragraph 1, and subject to the provisions of Article 19 (Remuneration and Pensions in Respect of Government Service), social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State"



Any opinions?:confused:


Question 2: Does USC/GC working in India need to pay US taxes on Indian PPF (Public Provident Fund)? Should this be declared in FBAR?

The threads in the R2I forum recommend to treat PPF as any ordinary bank account and not show this as deferred income. Any other views?:confused:

Thanks!

As per my tax consultant 1. Yes and 2. Yes , She also mentioned it in PFIC. :(

I would love to hear a different answer because as per recent ruling the PPF return is raised again for OCI and NRI's
https://economictimes.indiatimes.com/wealth/invest/nris-can-continue-their-ppf-account-now-earlier-it-was-to-close-on-losing-resident-status/articleshow/63079381.cms

[QUOTE]As per my tax consultant 1. Yes and 2. Yes , She also mentioned it in PFIC. :(


If EPF is considered PFIC, then 25% of one's Indian salary (12.5% each of employee + employer contribution) should not be considered as earned income but rather as passive income subject to PFIC!

This is indeed scary.

However from below article, it seems govt pension funds will be considered PFIC if the govt has no tax treaty with the US (example given below is Singapore). Their CPF seems to be similar to the Indian EPF except that they have no tax treaty.

http://www.butlersnow.com/wp-content/uploads/2015/03/Uncle-Sam-Wants-You-Bloomberg-BNA.pdf

"It is common for an account to be a tax-free retirement account abroad yet be fully taxable under U.S. law. Often taxpayers do not immediately think of a retirement savings account as a source of income, or as a foreign financial asset. Nonetheless, these accounts can result in underreporting of income to the U.S., not least because they often hold foreign mutual funds that are taxed under the complicated passive foreign investment company (“PFIC”) rules discussed below. For example, consider Singapore Central Provident Fund (“CPF”) accounts. In Singapore, both the employee and her employer are required to contribute to a CPF account. These payments are made by withholding from the employee's pay. As the U.S. does not have an income tax treaty with Singapore, the Code and Treasury Regulations govern how the U.S. taxes CPF accounts for U.S. taxpayers. Any gains earned in a CPF account will be included in gross income for U.S. federal tax purposes. The IRS has also taken the view that mandatory employer contributions to a CPF are income to the employee. Although these payments are the inevitable result of the employee's services performed for the employer, the IRS does not treat employer CPF contributions as
“earned income” for Section 911 purposes. Therefore, the contributions are income without the possibility of exclusion."

Thoughts, anyone? :confused:

[QUOTE]As per my tax consultant 1. Yes and 2. Yes , She also mentioned it in PFIC

Was checking if EPF/PPF could be considered PFIC and what the Indian govt had to say about it.

https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx

"Specific Treatment of Indian Retirement Plans. The United States shall treat as deemed-compliant FFIs or exempt beneficial owners, as appropriate, for purposes of sections 1471 and 1472 of the U.S. Internal Revenue Code, Indian retirement plans described in Annex II. For this purpose, an Indian retirement plan includes an Entity established or located in, and regulated by, India, or a predetermined contractual or legal arrangement. operated to provide pension or retirement benefits or earn income for providing such benefits under the laws of India and regulated with respect to contributions, distributions, reporting. sponsorship, and taxation."

and in Annex 2, we have

" Annex II

The following Entities shall be treated as exempt beneficial owners or deemed-compliant FFIs, as the case may be, and the following accounts are excluded from the definition of Financial Accounts.

I. Provident Fund. A fund established in India under the Provident Fund Act of 1952 or the Employees' Provident Funds and Miscellaneous Act of 1952 to provide current and former employees of Indian employers retirement benefits in consideration for services rendered, provided that fund:
1. Does not have a single beneficiary with a right to more than five percent of the fund's assets;
2. Is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in India;
3. The fund is generally exempt from tax in India on investment income under the laws of India due to its status as a Provident Fund; and
4. Contributions (other than certain permitted make-up contributions) by employees to the fund are limited by reference to earned income of the employee or may not exceed $50.000 annually, applying the rules set forth in Annex I for account aggregation and currency translation."

Looks like atleast EPF is explicitly considered to be FATCA compliant, although the definition seems to hold for PPF too.

Also interestingly, EPF is listed in the Social Security Admin website at https://www.ssa.gov/policy/docs/progdesc/ssptw/2016-2017/asia/india.pdf

So far the advice seems to be:
1) Include EPF & PPF in FBAR to be doubly safe
2) Declare interest income but get exemption under DTAA

Appreciate if folks can chime in.:confused:

WageRage : This is very good information. Frankly as I just started contributing from last year, I didn't bother to explore these in detail. Will post if I found out any further details

AFAIK - USC's can't have PPF a/c. If you have and you acquire USC, those accounts should be closed. SO your #2 is kind of not applicable.

Even NRIs - can't OPEN PPFs or extend existing PPFs. But if they have PPFs (opened while there were residents) can still operate those.
See confusion at - https://www.moneychai.com/nri-ppf-rules-account-notification-2017-2018.html

post_r2i06;675300AFAIK - USC's can't have PPF a/c. If you have and you acquire USC, those accounts should be closed. SO your #2 is kind of not applicable.

Believe it or not, it depends on Bank to Bank, branch to branch and person to person. I opened PPF, as USC/OCI settled in India on recommendation of my client relationship manager from the bank (Though regretting it now).

post_r2i06;675300Even NRIs - can't OPEN PPFs or extend existing PPFs. But if they have PPFs (opened while there were residents) can still operate those. See confusion at - [URL="https://www.moneychai.com/nri-ppf-rules-account-notification-2017-2018.html"]https://www.moneychai.com/nri-ppf-rules-account-notification-2017-2018.html

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That may be true, the rules for NRI are pretty clear in most cases, Its the third wheel of OCI but ROR who runs in to most trouble

ok I got confirmation on following facts from H & R Block Tax consultant and both OP and post_r2i06 were right

1. USC can not open PPF. (Apparently my relationship manager was not aware of rules).
2. EPF and PPF are not considered PFIC.

Really frustrated by ignorance and lack of professionalism by these so called professionals. Again I will have to waste my time correcting these things :(

Hi Dwija

Question 1: Does USC/GC working in India need to pay US taxes on Indian EPF (Employee Provident Fund)? Should this be declared in FBAR?

Did they respond to the above too?

WageRage;675310Hi Dwija

Question 1: Does USC/GC working in India need to pay US taxes on Indian EPF (Employee Provident Fund)? Should this be declared in FBAR?

Did they respond to the above too?

No WageRage I didn't ask that. Will find out about it on monday