How will my annuity be taxed if I live in Portugal on a Golden Visa?
Source: Live Mint
I applied for Portugal Golden Visa with my children’s education in mind. I was been granted one and now live in Portugal where I have my own business. Since I’m an Indian citizen, how will my NPS annuity be taxed in India? Will it change if I apply for Portuguese citizenship in the future?
-Name withheld on request
You have not mentioned your period of stay, but I assume you have become a non-resident Indian and a resident of Portugal as you run a business there. I also assume you do not spend more than the specified threshold period (120 days/182 days) on your visits to India, and therefore do not become a resident under Indian income tax law. Assuming you are liable to pay tax in Portugal as a resident, you qualify as a tax resident of Portugal under the India-Portugal Double Taxation Avoidance Agreement (DTAA).
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NPS annuity receipts are taxable under Indian income tax law under the head ‘Income from Other Sources’ at your applicable tax slab rate in India. However, you may check the India-Portugal DTAA to determine whether you are eligible for any benefits under it.
Article 18 of the India-Portugal DTAA covers pension income. Annuities are also generally covered by this article in major double-taxation treaties. However, only pensions and annuities paid in respect of past employment are covered by this article. Since NPS annuity income does not arise in consideration of past employment, it is not covered by Article 18, which grants the sole taxing rights to the taxpayer’s current state of residence.
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Article 19 of the India-Portugal DTAA does not cover NPS annuities as it specifically pertains to government pensions. Any income not covered under a specific clause of the DTAA falls under Article 22 – ‘Other Income’. According to Article 22, NPS income will be taxed only in Portugal, and India doesn’t have the right to tax it.
This analysis remains valid even if you become a Portuguese citizen, as taxation is based on your place of residence, not citizenship. That being said, the deemed tax residency test (which applies to people who are not liable to pay tax in any country) would not apply to you.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
Also read: How are various pensions and annuities taxed in India?
