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I was working for an Indian IT company. I worked in India for few years and then was deputed to a client location in US. In the middle of last year, I quit the Indian company and joined an American IT company. My Indian IT company paid me provident Fund, EPS and Gratuity money.

Now my question is:
- Is this money taxable in US?

I asked the same question to my tax advisor and she told me that if it was money paid by say an American company, for eg:- 401k money after quitting the company (in lieu of transferring the money to my next employer), then yes its taxable under US laws. So she 'thinks' that the money I received from my India IT company should also be taxable. Kindly advise.

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Indian PF is a social security scheme, and as per the US India DTAA Article 20, is not taxable by the US. The exact text says as under -


  1. 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.

This clearly states that any social security benefit paid by any of the two contracting states to a resident of the other contracting state is taxable only in the first mentioned state. In other words, US cannot tax Indian social security benefits (and vice versa). Therefore, you are liable for taxes only in India even though you have to declare to the US that you were given the social security (PF) benefit by India.

  • Thank you user30524, a quick question - if PF was not taxed in India, will it still stay non-taxable in USA? – JavaTec Jul 21 '15 at 20:57
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    PF is non taxable in India if an employee quits after 5 years of continuous service. In such a case, if the PF payment is made (as in credited to the bank account by EPFO) after the person moves to the US, yes, it would not be taxable in India OR US even though you'd have to show this income to the US on 1040 as foreign income since the payment was made during your residency period, and then claim treaty benefit to exclude the PF payment from US taxes. I am not sure, yet, but I believe that foreign earned income exclusion has a role to play here. – user30524 Jul 22 '15 at 13:00
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Is this money taxable in US?

From what you described you're likely to have been a US tax resident. As such, you're taxed on your worldwide income. Foreign tax deferral schemes are not considered qualified under the US law (unless a treaty says otherwise), so you're liable for taxes on them now.

Get a new tax adviser.

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The DTAA (Double Taxation Avoidance Agreement) Article 20 will apply to the Provident Fund money received while you were a resident in the US.

Yes, you will add the Interest received on PF (Interest only for the year/s when you were a resident of US, and not when you were a Resident in India) in your 1040 and claim exemption under the treaty.

Do not add all of your PF contribution for last 10 years or 10 years of interest to 1040, as this was not contributed/earned when you were a US Resident. Consider, just the Interest Earned in the year when you become a Resident of US and then claim exemption under the treaty.

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