Are transferred funds from NRO Account to USA taxed?

Question

I received my PF amount in my NRO account. If i transfer that amount to USA, will i be paying tax before transfer at Indian side or after transfer in US?

Different websites give confusing rules, what is the latest ?

Answer 1

Money in your NRO account is your money, and as far as US tax rules are concerned, whether you keep it in Indian rupees in your NRO account, or in the US in US dollars is not relevant as far as US tax law is concerned. Thus, transfer of the money from India to the US is not a taxable event as far as US income taxes are concerned (neither Federal nor State income tax). What is much more relevant are several other concerns.

If you are a tax resident of the US (note: this has nothing to do with your immigration status), you are required to disclose your world-wide income and pay taxes on that money. If you have already paid taxes on some income received in India (e.g. interest income in NRO accounts is subject to tax-deducted-at-source or TDS withholding), you can claim a credit against your US tax bill for taxes paid to India so that between India and the US, you pay tax at a rate which is the larger of your Indian Income Tax rate and your US tax rate -- there is no double taxation, only single taxation at the higher of the two rates.

So,

• Have you been declaring your world-wide income to the IRS ever since you became a US tax resident? The income might be from NRE accounts, NRO accounts, ordinary savings accounts or fixed deposit accounts that you hold even though as an nonresident Indian (NRI) or person of Indian origin (PIO) you are not entitled to hold such accounts, dividends from stick holdings or mutual funds, capital gains from selling stock or immovable property (real estate fro US readers) etc. If not, I recommend filing amended US and State returns for previous years to report all such income.
• Have you been declaring the existence of your nonUS accounts to the IRS each year as required on Schedule B of Federal Form 1040, and perhaps separately on FinCen Form 114 also? If not, please do so by filing amended returns.
• You say you have received a lump sum from your Provident Fund, which the Government of India calls a Social Security Scheme. Social Security benefits are taxable income in the US (though with a large exemption) and so that lump sum is taxable US income to you in the year you receive it. I don't know if it is taxable Indian income to you.

Finally, assuming that the amount deposited into your NRO account by EPF is the net amount after taxes have been deducted at the source or you received the full amount and promptly paid the tax due by depositing tat amount with the Indian Income Tax authorities, then you can transfer the balance (up to Us$ 250K per year) by getting a Chartered Accountant (CA) to certify (on Form 15A?15B?) to your bank that all relevant Indian taxes have been paid/withheld on the money being transferred, and so the money can be transferred outside India in accordance. with the liberalized remittance scheme permitted by the Reserve Bank of India. No taxes are due on this transfer, neither from India nor from the US, but the bank will likely charge a hefty fee for the service,