How Pensions Are Taxed for NRIs: Indian Pension, Foreign Pension, and the DTAA Articles That Decide Who Charges You

You spent twenty years in the UK. A defined-benefit pension starts paying next year, you have a small Indian pension from a job you held before you left, and nobody gives you a straight answer on who taxes what. The bank in India wants to deduct tax on the Indian pension. HMRC will tax the British one. And no one can tell you whether moving back to Pune in a few years suddenly turns the UK pension into an Indian tax problem.

The confusion comes from collapsing two separate questions into one. The first is where the pension arises. The second is where you are tax-resident when you receive it. India taxes an Indian-source pension no matter where you live, and ignores a foreign pension entirely while you are non-resident. The moment you become an ordinary resident again, that second rule flips. Getting these two axes straight is the whole game, and almost every expensive mistake here is a failure to keep them apart.

The 30-second answer: A pension that arises in India is Indian-source income and taxable in India whatever your residential status. An uncommuted monthly pension is taxed under Salaries at slab rates after the Rs 75,000 standard deduction (Section 16(ia)), with TDS under Section 192 or Section 195. A government-service pension is reserved to India alone by the DTAA government-service article (often Article 19), while a private or annuity pension is usually taxable only in your country of residence under the pension article (Article 18, Article 20 in the India-US treaty), claimed with a TRC and Form 10F. A foreign pension stays outside the Indian net while you are non-resident or RNOR, and becomes taxable only when you turn Resident and Ordinarily Resident. US Social Security is US-only under Article 20(2), and Section 89A with Form 10-EE defers tax on US, UK and Canadian retirement accounts. File ITR-2 by July 31, 2026. The Section 87A rebate is residents only.

This guide is part of our NRI tax-filing series. For assembling the whole return, start with the NRI ITR filing guide for AY 2026-27, then come back here for the pension detail.

What follows splits the two axes cleanly. It covers how an Indian pension is taxed for an NRI, government versus private, commuted versus uncommuted, including the standard deduction NRIs forget they have, plus EPF, EPS and the NPS exit rules that changed in December 2025. It covers the foreign pension you receive abroad and why it is invisible to India while you are non-resident. It works through the DTAA pension and government-service articles, country by country for the US, UK, UAE and Canada, and explains exactly what changes when you move back and the RNOR window closes. One note on dates before we start: AY 2026-27 covers income earned in FY 2025-26, which is still governed by the Income Tax Act 1961, so the section numbers below (10(10A), 10(12), 89A, 192, 195) are the live ones for the return you file by July 2026. The Income Tax Act 2025 renumbers them from 1 April 2026, and where it matters I flag the new section.

Two axes: where the pension arises, and where you are resident

Fix these two things in your mind before anything else, because mixing them is the root of every error in this area.

Axis one is source. A pension has a source country, the place where the entitlement was earned and from which it is paid. A pension from the Government of India, an Indian former employer, EPS, or an Indian insurer's annuity is Indian-source. A pension from a UK employer, the UK state pension, US Social Security, a 401(k), IRA, Canadian CPP or RRSP is foreign-source.

Axis two is your residential status in the year you receive it. Under Section 6 you are Non-Resident (NR), Resident but Not Ordinarily Resident (RNOR), or Resident and Ordinarily Resident (ROR). For the day-counting tests and the RNOR transition, see NRI residency and RNOR rules.

The interaction is a four-cell grid. An Indian-source pension is taxable in India in every status, NR, RNOR or ROR, because India always taxes income that arises here. A foreign-source pension is outside the Indian net while you are NR, still sheltered during RNOR, because RNOR keeps qualifying foreign income out of the charge, and enters the net only when you become ROR, because an ROR is taxed on worldwide income. Hold that grid in your head and everything below is just detail hanging off four cells.

Your Indian pension: taxable, and here is exactly how, including the deduction you forget

If you earned a pension in India before you left, or you draw an Indian government pension, that income is Indian-source and stays taxable in India for as long as you receive it. Being an NRI does not exempt it. What changes by status is only the withholding section and a couple of resident-only reliefs.

Start with the relief NRIs routinely throw away. A former-employer pension is taxed under the head Salaries, which means the Section 16(ia) standard deduction applies to it, and an NRI gets it just as a resident does. For FY 2025-26 that is Rs 75,000 under the new regime and Rs 50,000 under the old, deducted straight off the pension before slab tax. On a Rs 1,80,000 Indian pension under the new regime, Rs 75,000 comes off the top and only Rs 1,05,000 is exposed to slab. People file showing the gross pension as income and never claim the deduction, handing the exchequer tax on money the section already exempts. Under the Income Tax Act 2025 the same Rs 75,000 deduction moves to a renumbered section from 1 April 2026, with no change to the amount.

The regular monthly pension is the uncommuted pension, taxed under Salaries at your slab rates, added to your total India income with no special concession for being a pension and none for being non-resident. A pension paid by an insurer under an annuity you bought, including the annuity leg of an NPS exit, is also fully taxable at slab, generally under Salaries or Income from Other Sources depending on structure.

When you take part of your pension as a one-time lump sum instead of higher monthly payments, that is commutation, and the lump sum is the commuted pension. Its treatment under Section 10(10A) turns entirely on the employer. For a government employee, central, state, defence, local authority and statutory corporation, the commuted pension is fully exempt, the whole lump sum tax-free. For a non-government employee it is partly exempt: if you also received gratuity, one-third of the full commuted value is exempt; if you did not, one-half is exempt, with the balance taxed as salary in the year of receipt. These exemptions attach to the pension and the employer type, not to your residential status, so a returning government officer's commuted pension is tax-free whether claimed as an NRI or after moving home. The arithmetic is easiest to see on a private-sector number. Say you commute a pension whose full commuted value is Rs 24,00,000 and you received gratuity. One-third, Rs 8,00,000, is exempt; the remaining Rs 16,00,000 is taxed as salary in the year of receipt. Had you not taken gratuity, one-half, Rs 12,00,000, would be exempt and only Rs 12,00,000 taxed, a Rs 4,00,000 difference in exempt income from one structuring choice that most retirees make on autopilot.

A family pension, received as the family member of a deceased employee, breaks the pattern: it is taxed not under Salaries but under Income from Other Sources, with a deduction of one-third of the pension or Rs 25,000, whichever is lower, and the balance added to income. There is no Section 192 TDS on a family pension because it is not salary, though the payer may withhold under Section 195 for a non-resident.

EPF, EPS and the NPS exit rules that changed in December 2025

For NRIs with an Employees' Provident Fund balance from their India years, the rule that matters is the holding period. Under Section 10(12) an EPF withdrawal is fully exempt, employee contribution, employer contribution and interest, if you had five years of continuous service, where continuous service counts time at earlier employers as long as the balance was transferred rather than withdrawn. Below five years the withdrawal is taxable and TDS applies. Here is the trap NRIs keep hitting: when you withdraw, EPFO sometimes deducts TDS at a high non-resident rate under Section 195 even on a withdrawal that is exempt under 10(12) after five years. That deduction is generally wrong on completed service, but EPFO applies it anyway, and your only remedy is to recover it by filing ITR-2. Two practical moves follow. Withdraw promptly after you leave, because an inoperative EPF account stops crediting interest after three years and the interest that did accrue while inoperative is separately taxable. And be ready to claim the refund when TDS comes off a withdrawal that should have been clean. The Employees' Pension Scheme (EPS) pays a monthly pension that, once it starts, is taxable as a pension in the ordinary way.

NPS is where the most recent change lives, and it cuts against the old advice. The familiar rule was 60% lump sum, tax-free under Section 10(12A), with the remaining 40% compulsorily annuitised and the annuity taxed at slab. In December 2025 the PFRDA raised the lump-sum ceiling to 80%, with the minimum annuity purchase cut to 20%. The catch is that the Income Tax Act exemption did not move with it: Section 10(12A) still exempts only 60% of the corpus. So if you take the new maximum 80% lump sum, the slice between 60% and 80%, a fifth of your corpus, is taxable at your slab rate, and for an NRI with little other Indian income that still means slab tax on it. The clean default for most people remains a 60% lump sum so the whole withdrawn amount stays exempt, taking more only if you have a deliberate reason. The account-level mechanics for non-residents, including who can hold an NPS account and the annuity treatment, are in NPS for NRIs.

Which TDS section bites, and the one rebate you cannot use

Two sections can apply to your Indian pension, and which one bites depends on the payer. Section 192 governs TDS on salary, and a former-employer pension is treated as salary, so the payer deducts at your estimated slab rate, the same machinery a resident pensioner faces, after giving effect to the standard deduction. Banks disbursing a government pension also operate Section 192. Section 195 governs TDS on most payments to non-residents, and where a payer treats your pension as a payment to a non-resident rather than as salary, it withholds under 195, which carries none of the comfortable slab estimation of 192 and tends to deduct at a flat, cautious rate without the standard deduction baked in. Either way the TDS is a prepayment, not your final tax; you settle the real liability on filing and recover any excess. The recovery mechanics are in TDS for NRIs and refunds, and because most Indian pensions credit to an NRO account, the account side is in tax on NRO interest and NRE, NRO and FCNR accounts.

One resident-only relief you cannot touch: the Section 87A rebate is for residents only. A resident pensioner with low total income can rebate the tax to nil; an NRI on the same pension cannot, and pays slab tax from the first rupee above the basic exemption. The standard deduction you keep; the 87A rebate you lose.

Your foreign pension: invisible to India, for now

This is the part that surprises people, usually pleasantly. While you are a non-resident of India, India does not tax your foreign pension at all. Not the UK occupational pension, not the UK state pension, not US Social Security, not a 401(k) or IRA distribution, not Canadian CPP or an RRSP drawdown. None of it.

The reason is structural, not a concession. India taxes a non-resident only on income that accrues, arises, or is received in India. A pension that arises abroad and is paid into a foreign account is foreign-source income received outside India, so it is simply outside the charge. Nothing to declare, no Indian TDS, no return entry. Your foreign pension is a matter between you and the tax authority where it arises and where you live.

This continues through the RNOR phase. When you first move back, you typically spend up to two or three years as Resident but Not Ordinarily Resident, and qualifying foreign income remains outside the Indian net for those years. So even after you have physically returned, your foreign pension is usually still sheltered for the RNOR window, which is one of the most valuable and most wasted planning opportunities a returning NRI has. The full window is mapped in NRI residency and RNOR rules, with the money side in building an India corpus and retirement planning across two countries.

One caveat to flag now: where the pension is paid can change the answer. If you arrange for a foreign pension to land directly in an Indian account while you are resident, you create an argument that the income was received in India, pulling it into the net earlier than necessary. Receive foreign pensions in a foreign account and remit to India when you need the cash, because a remittance of already-earned income is not itself taxable. We return to this in the Edge cases.

The DTAA: two articles that point in opposite directions

Once a pension is potentially taxable in two countries, the Double Taxation Avoidance Agreement between India and your country of residence decides who has the primary or sole right. Two articles do the work, and they point in opposite directions, which is exactly why people get lost.

The pension article, often Article 18 and in the India-US treaty Article 20, covers private and occupational pensions and annuities and sets the rule that such pensions are taxable only in the country of residence of the recipient. This cuts both ways. If you are an NRI abroad receiving an Indian private pension, the article generally says it is taxable only in your country of residence, not India, and India should step back; you assert this by giving the Indian payer a Tax Residency Certificate and an electronically filed Form 10F, the same machinery as any treaty claim, without which the payer withholds at the domestic rate and you recover on your return. If you have returned to India and become resident, the same article makes your foreign private pension taxable only in India, your new country of residence, so a 401(k) drawdown or a UK occupational pension is then India's to tax. The mechanics are in DTAA mechanics: TRC and Form 10F and DTAA relief for NRIs.

The government-service article, often Article 19 and in the India-US treaty also Article 19, covers pensions paid for past government service and reverses the default: a government-service pension is generally taxable only in the country that pays it. So an Indian government pension is generally taxable only in India, even if you live in the UK, US, UAE or Canada, which is why a retired Indian civil servant abroad still pays Indian tax on it and the pension article does not rescue them. A foreign government pension received after you return to India is generally taxable only in the paying country and exempt in India, the mirror image.

The exception built into the government-service article is the resident-and-national carve-out: the pension is taxed only in the other country if the recipient is both a resident of and a national of that other country. So an Indian government pensioner who naturalised as, say, a British or US citizen may fall into the carve-out and have the pension taxable only in the country they live in. Citizenship, not just residence, is the trigger, and it catches long-settled NRIs who took a foreign passport years ago and never re-examined the pension. The clean way to hold both articles together: private pensions follow the person (country of residence); government pensions follow the payer (paying state), unless you are a resident-and-national of the other country. Treaty wording varies, so verify the article numbers and the precise carve-out against your specific treaty.

Where each country actually taxes your pension

The general rules above resolve into different answers for the four countries most readers live in. This is the table to keep.

Your situation (after return to India, ROR)	Where it is taxed	The article or section to cite
Indian government pension	India only	Govt-service article (Art 19); carve-out if you are a foreign citizen
Indian private / employer pension	India (you are resident)	Pension article (Art 18 / 20)
US Social Security	US only, exempt in India	India-US Article 20(2)
US 401(k) / IRA drawdown	India (your residence), credit for US tax	Pension article + Section 89A / Form 10-EE
US government-service pension	US only, exempt in India	Govt-service article (Art 19)
UK occupational / private pension	India (your residence)	Pension article (Art 18)
UK state pension	Debated; often UK, can be both with FTC	India-UK treaty; fact-specific
UK government-service pension	UK only, exempt in India	Govt-service article (Art 19)
UAE pension / end-of-service	Effectively untaxed (no UAE income tax)	Pension article; UAE levies no personal tax
Canadian CPP / OAS / RRSP / RRIF	India (your residence), credit for Canadian tax	Pension article + Section 89A for RRSP/RRIF

A few country specifics behind the table are worth spelling out.

United States. Under Article 20(2), US Social Security and other US public pensions paid to a resident of India are taxable only in the United States, and crucially this provision sits outside the treaty's saving clause, so it is the final word for both countries. A returning NRI drawing US Social Security pays no Indian tax on it; you still report it on the Indian return once resident and claim the Article 20(2) exemption so the taxable amount is nil, rather than omitting it. Keep the benefit in a US account and remit as needed to avoid the received-in-India argument. The 401(k) and IRA are different animals: ordinary private pensions under the pension article, India's to tax once you are ROR, with Section 89A available to fix the timing mismatch (more below).

United Kingdom. The UK private and occupational pension is squarely India's to tax once you are ROR. The UK state pension is the genuinely debated corner: it is commonly taxable in the UK, and after you become Indian-resident there is a real argument it can be taxed in both countries with foreign tax credit resolving the overlap, rather than being cleanly reserved to one side the way US Social Security is. The answer turns on the specific treaty wording and on whether the pension is read as government or private. Do not assume the UK state pension is automatically exempt in India once you are resident; verify against the India-UK treaty and budget for tax in at least one country.

UAE. The Gulf case is simple because the UAE levies no personal income tax. A UAE-resident NRI receiving an Indian private pension can claim the pension article to keep it out of India (TRC and Form 10F), and since the UAE taxes nothing, the pension can end up effectively untaxed on both sides, the same structural advantage Gulf residents enjoy on share gains. An Indian government pension stays India's regardless. End-of-service gratuity from a UAE employer is foreign-source and outside the Indian net while you are non-resident.

Canada. CPP, OAS, RRSP and RRIF withdrawals are foreign-source and outside India while you are non-resident or RNOR. Once ROR, an RRSP or RRIF drawdown is a private pension taxable in India under the pension article, and Canada is one of the notified countries for Section 89A, so you can elect receipt-basis taxation on the RRSP/RRIF to match Canada's deferral, then claim foreign tax credit on Form 67 for Canadian withholding.

Section 89A: the timing fix for US, UK and Canadian retirement accounts

This is the provision that turns a real double-tax headache into a manageable one, and most general guides skip it. The problem it solves: a 401(k), IRA, RRSP or UK pension fund typically grows tax-deferred at home and is taxed only on withdrawal, but once you are an Indian ROR, India can try to tax the accrual inside the fund year by year, creating a mismatch where India taxes growth the foreign country has not taxed yet. Section 89A, with Rule 21AAA and Form 10-EE, lets a returning resident elect to be taxed on these specified foreign retirement accounts on a receipt basis, the same way the foreign country taxes them, so income enters the Indian charge when you actually withdraw, not as it accrues. The notified countries are the United States, United Kingdom and Canada, which is why the table above pairs 89A with 401(k)/IRA, the UK pension fund and the RRSP/RRIF, but not with a UAE pension. You file Form 10-EE electronically before the ITR, and the election then governs how that account is taxed in India. The deeper account-by-account planning is in retirement planning across two countries and the credit mechanics in foreign tax credit and Form 67.

How it all changes when you move back

Nothing about your Indian pension changes when you return; it was always taxable in India and remains so, now with resident reliefs including the 87A rebate if your income is low enough. The shift is entirely on the foreign pension, and it happens in three stages tied to residency.

While you are still non-resident, the foreign pension is outside the Indian net and the Indian pension is taxable in India. Straightforward. In the RNOR years you have moved back, but for up to two or three years your foreign pension is still sheltered, the single most valuable window in this whole subject. If you have any flexibility on when to draw down a 401(k), take a UK lump sum, convert an IRA or unwind an RRSP, doing it during RNOR can keep that money out of the Indian charge for good. Once the window closes and you are Resident and Ordinarily Resident, India taxes your worldwide income and the foreign pension enters the net, with the DTAA assigning each stream: a foreign private or annuity pension is generally taxable only in India (pension article), a foreign government-service pension stays with the paying country unless the carve-out flips it, and US Social Security stays US-only under Article 20(2). For US, UK and Canadian accounts you layer Section 89A over the top to control timing and Form 67 to credit any foreign tax.

Put rupee numbers on a UK case. Sunita worked in India until 2008, moved to Manchester, and holds a small Indian private-employer pension of Rs 1,80,000 a year plus a UK occupational pension of about Rs 8,00,000 a year that starts when she retires. She returns to Pune in 2027. While she is in the UK and non-resident in India, the Indian pension is Indian-source and taxable in India, though under the pension article it is in principle taxable only in the UK, so she can furnish a UK TRC and an e-filed Form 10F to have the payer withhold at the treaty position; either way she files ITR-2, claims the Rs 75,000 standard deduction so only Rs 1,05,000 is exposed, and accepts she cannot rebate it to nil because 87A is residents only. Her UK pension is invisible to India in these years. In her first two RNOR years back home the Indian pension is taxed at resident slabs, now with 87A available if her income is low, while the UK pension stays sheltered by RNOR; if she can pull a UK lump sum into these years it never enters India. Once she becomes ROR, the UK occupational pension enters the net at slab under the pension article, so her India income is roughly Rs 8,00,000 plus Rs 1,80,000 = Rs 9,80,000, less the Rs 75,000 standard deduction, with Form 67 credit for any UK tax. The Indian pension never moved; the UK pension was invisible, then sheltered, then squarely India's, in three steps tied to her residency.

The US case shows how many directions one return can split into. Ravi spent a decade with a US state-government department, holds a US government-service pension, a 401(k) he will draw down, and will eventually claim US Social Security, plus an Indian government pension of Rs 3,00,000 a year from earlier central-government service. He returns to Bengaluru and, after RNOR, becomes ROR. His Indian government pension is Indian-source and, under the government-service article, taxable only in India regardless of where he lives; had he naturalised as a US citizen, the resident-and-national carve-out could have made it US-only, but he returned to India first, so India taxes it. His 401(k) drawdown is a private pension: outside India while non-resident or RNOR, and once ROR taxable only in India under the pension article; say he draws the equivalent of Rs 12,00,000 in his first ROR year, that figure enters his Indian return at slab, he elects Section 89A via Form 10-EE to align timing and claims Form 67 credit for any US withholding, and any drawdown pulled forward into RNOR escapes the Indian charge entirely. His US government-service pension is taxable only in the US and exempt in India, the mirror of his Indian one. His US Social Security is US-only under Article 20(2) and exempt in India, kept in a US account and remitted as needed. So in his first ROR year his Indian taxable pension income is the Rs 3,00,000 Indian government pension plus Rs 12,00,000 from the 401(k) = Rs 15,00,000 at resident slabs, with Form 67 credit on the 401(k); the US government pension and Social Security sit outside the Indian charge. Four streams, four destinations, one return.

Edge cases

Pension credited directly into an Indian account. Receiving a foreign pension straight into an NRO, NRE or resident account while you are Indian-resident risks the income being treated as received in India, taxable here earlier than the worldwide-income rule alone would require. Receive foreign pensions abroad and remit when needed; a remittance of already-earned income is not itself taxable.

You naturalised abroad. If you took citizenship of your country of residence, your Indian government pension may fall under the resident-and-national carve-out and become taxable only in that country rather than India. Citizenship, not residence alone, is the trigger, and it is easy to miss for NRIs who became citizens years ago.

You took the new 80% NPS lump sum. Because Section 10(12A) still exempts only 60%, the 60%-to-80% slice enabled by the December 2025 PFRDA change is taxable at slab. Do not assume the headline 80% is tax-free.

EPF TDS on an exempt withdrawal. EPFO may withhold under Section 195 on an EPF withdrawal exempt under Section 10(12) after five years. That is generally an over-deduction on completed service; recover it by filing ITR-2, and withdraw promptly to avoid an inoperative account whose interest is separately taxable.

RNOR misjudged. The foreign-pension shelter depends on actually being RNOR. Miscount your days and be ROR a year earlier than you thought, and the foreign pension enters the net a year early. Track residency precisely against the day-counting tests in the residency and RNOR guide.

Dual residence in the year of return. In the split year when you move, you may be resident in both countries under their domestic rules. The DTAA tie-breaker then decides your treaty residence for the year, which drives which country the pension article assigns the pension to. See DTAA tie-breaker and dual residency.

Roth IRA. Qualified Roth distributions are tax-free in the US, but whether India must also treat them as tax-free once you are resident is debated, because the pension article generally lets India tax a private pension and India does not automatically import the US tax-exempt character. Do not assume a Roth is tax-free in India in your ROR years; the position is unsettled and worth specific advice.

The honest read

Pension taxation for an NRI is two simple rules wearing a complicated costume. Rule one: an Indian pension is taxable in India for as long as you receive it, full stop, and you should always claim the Rs 75,000 standard deduction that comes with it. Rule two: a foreign pension is invisible to India while you are non-resident or RNOR, and becomes India's to tax only when you turn ROR. The article numbers, the commuted-pension fractions, the social-security carve-outs, Section 89A, are all detail hanging off those two rules.

So commit to this. If you are still abroad, the work is small: file ITR-2 on your Indian pension, claim the standard deduction, use a TRC and Form 10F where a treaty rate helps, and recover any over-withheld TDS, especially the EPF over-deduction that catches so many. Do not over-report your foreign pension into the Indian net by accident; it is not India's concern yet. If you are planning to return, the money is almost entirely in the RNOR window. Those two or three years are the only time your foreign pension is both physically accessible from India and still outside the Indian charge, so time a 401(k) drawdown, a UK lump sum or an RRSP unwind into that window if you possibly can, and elect Section 89A on whatever spills past it. For the common returning case, that is the single highest-value decision on this page; the exception is the pensioner whose foreign income is overwhelmingly US Social Security or a foreign government pension, for whom the treaty already does the work and the RNOR timing matters far less.

On the genuinely debated corners, be honest with yourself. The UK state pension treatment in India after return is not settled, the Roth position in your ROR years is contested, and the resident-and-national carve-out catches naturalised citizens who never see it coming. On those three, get country-specific advice rather than leaning on a general rule, because the general rule is exactly where they break.

Related guides

• NRI ITR filing for AY 2026-27
• NRI residency and RNOR rules
• DTAA relief for NRIs
• DTAA mechanics: TRC and Form 10F
• DTAA tie-breaker and dual residency
• Foreign tax credit and Form 67
• Tax on NRO interest
• RSU and ESOP taxation for NRIs
• Retirement planning across two countries
• NPS for NRIs
• NRE, NRO and FCNR accounts
• TDS for NRIs and refunds
• All Taxation guides
• All Investments guides

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This guide is general information, not tax advice. Pension taxation depends on your residential status, your country of residence, your citizenship, the specific treaty articles in your DTAA, and how and where the pension is paid. Several positions noted here, including the UK state pension treatment after return, the Indian taxation of Roth distributions, and the resident-and-national carve-out on government pensions, are genuinely unsettled or fact-specific. Rates, sections and provisions cited are for AY 2026-27 (FY 2025-26 income, governed by the Income Tax Act 1961); the Income Tax Act 2025 renumbers several of these sections from 1 April 2026. Confirm your position with a qualified chartered accountant or cross-border tax adviser before filing or relying on a treaty article.