How to Avoid Double Taxation on Pensions and Investments - NRI's Guide

Picture this: You've worked in Dubai for 25 years, built a solid nest egg, and you're finally ready to return to India. Your 401(k) has grown to $300,000. 

You have fixed deposits in India earning ₹5 lakh annually. You own rental property in Bengaluru. Everything feels secure.

Then you discover you might need to pay taxes on the same income twice-once in the UAE and once in India.

At Belong, we've helped hundreds of NRIs navigate exactly this situation. The good news? With the right planning, you can legally avoid most double taxation and keep more of your hard-earned retirement income. 

Our team has built tools like the Residential Status Calculator and maintains an active WhatsApp community where over 8,000 retiring NRIs share real strategies that actually work.

This guide covers everything you need to know about avoiding double taxation on pensions and investments as you plan your return to India.

What Is Double Taxation (And Why Does It Happen)?

Double taxation occurs when two countries claim the right to tax the same income.

For example, you worked in the US and contributed to a 401(k) retirement account. 

When you return to India and withdraw from that account, the US may tax the withdrawal (as it's a US-based account), and India may also tax it (because you're now a resident).

Without proper planning, you could lose 40-50% of your retirement income to taxes across both countries.

Double taxation typically affects:

• Foreign pension accounts (401(k), IRA, UK pensions, superannuation funds)
• Fixed deposit interest from NRO accounts
• Rental income from Indian property
• Dividends from Indian stocks
• Capital gains from selling property or mutual funds

👉 Tip: Before you become a tax resident of India again, use our Residential Status Calculator to understand your tax obligations. Your status changes based on days spent in India.

Why Retiring NRIs Face Unique Double Taxation Risks

When you lived abroad as an NRI, India only taxed your Indian-sourced income. Your foreign salary, foreign investments, and foreign pension contributions weren't taxed in India.

But once you return to India and become a resident, the rules flip.

As per the Income Tax Act 1961, residents are taxed on their global income-including foreign pensions, foreign bank accounts, and income from any source worldwide.

Here's where problems arise:

Scenario 1: Foreign Retirement Account 

You contributed to a 401(k) in the US for 20 years while you were an NRI. The US didn't tax these contributions when you made them. But now, when you withdraw the funds as an Indian resident, both countries may claim taxes-the US at withdrawal (per their rules) and India on the accrued income.

Scenario 2: NRO Fixed Deposit Interest 

Your NRO fixed deposit in India earns ₹3 lakh interest annually. India deducts 30% TDS on this. If you're also earning income in your resident country, that country might also tax this interest, leading to double taxation.

Scenario 3: Rental Income 

You own property in Mumbai that generates ₹30,000 monthly rent. India taxes rental income at slab rates. Your country of residence may also tax this foreign income.

Without Double Taxation Avoidance Agreements (DTAA), you'd pay full taxes in both countries.

Also Read -DTAA for Freelancers, Consultants & Remote Workers: The Complete 2025 Guide

Section 89A: Critical Relief for Foreign Retirement Accounts

This is one of the most important-yet least understood-provisions for returning NRIs.

Before 2021, many NRIs who returned to India faced a nightmare scenario: Their foreign retirement accounts (like 401(k), IRA, UK pensions, Australian superannuation) accrued income every year. India wanted to tax this accrued income immediately upon becoming a resident, even though the foreign country only taxed it at withdrawal-creating massive double taxation and cash flow problems.

Section 89A changed this. Introduced in the Finance Act 2021, it allows you to defer taxation in India on foreign retirement account income until you actually withdraw the money, aligning with how the foreign country taxes it.

Who Can Use Section 89A?

You qualify if:

• You opened a foreign retirement account while you were an NRI
• The account is in a notified country (US, UK, Canada, Australia, Singapore, and others)
• The foreign country taxes withdrawals, not accruals
• You're now a resident of India

How It Works

Let's say you worked in the US and built a 401(k) worth $200,000. You return to India in 2024.

Without Section 89A:

• India would tax all the dividends, interest, and capital gains that accrue in your 401(k) account every year
• You'd owe Indian taxes on growth you haven't even received yet
• The US wouldn't give you a tax credit because they haven't taxed you yet
• Result: You pay Indian taxes now, then US taxes later when you withdraw

With Section 89A:

• You file Form 10-EE before your ITR due date
• India defers taxation until you actually withdraw the money
• When you withdraw, both countries may tax it, but you can claim Foreign Tax Credit
• Result: Tax timing aligns, and you avoid double taxation

👉 Tip: You must file Form 10-EE every year to maintain Section 89A benefits. The election is irrevocable for that specific retirement account.

Section 89A applies to income accrued from April 1, 2021 onwards and is now a permanent relief measure for NRIs with foreign retirement savings.

Understanding DTAA: Your First Line of Defense

India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries to prevent residents from being taxed twice on the same income. These treaties specify which country has the right to tax different types of income.

How DTAA Works: Two Main Methods

1. Exemption Method One country exempts the income entirely. You pay taxes in only one location.

Example: Under the India-UAE DTAA, if you're a UAE resident receiving a private pension from India, India does not have the right to tax that money (Article 19 of the treaty).

2. Tax Credit Method Both countries can tax the income, but you get credit in your resident country for taxes already paid in the source country.

Example: You earn ₹10 lakh rental income from Indian property while living in the US. India taxes it at 30% (₹3 lakh). The US also taxes your global income, but you can claim the ₹3 lakh as Foreign Tax Credit in the US, so you only pay the difference.

Key Income Types Under India-UAE DTAA

The India-UAE DTAA, signed in 1993, is especially relevant for our readers. Here's how different incomes are treated:

Source: India-UAE DTAA, TDS Rates - Income Tax India, Section 195 TDS for NRIs, India Corporate Withholding Taxes - PwC,

👉 Tip: A landmark 2024 Mumbai ITAT ruling held that capital gains from mutual fund investments by UAE residents are not taxable in India, as mutual fund units are structured as trust units (not company shares) under SEBI regulations. This could save you lakhs if you're a UAE resident with Indian mutual fund holdings.

How Different Retirement Income Types Are Taxed

Let's break down how India taxes various retirement income sources-and how to reduce that burden.

1. Foreign Pensions (401(k), IRA, UK Pensions, etc.)

Indian Taxation: Foreign pensions are fully taxable in India under the head "Salaries" if you're a resident. Uncommuted (monthly) pensions are fully taxable at slab rates.

How to Avoid Double Taxation:

• Use Section 89A to defer taxation until withdrawal
• When you withdraw, claim Foreign Tax Credit (FTC) in India for taxes paid in the foreign country
• File Form 67 with your ITR to claim FTC

Example: You withdraw $50,000 from your US 401(k). The US deducts 20% tax ($10,000). India would normally tax this at 30% (₹12.45 lakh). But you can claim FTC for the $10,000 paid to the US, reducing your Indian tax liability.

2. Indian Pensions

Uncommuted pension (monthly payments) is fully taxable as salary. Commuted pension (lump sum at retirement) enjoys partial exemption under Section 10(10A).

Tax Treatment:

• Government employees: Commuted pension is fully tax-exempt
• Non-government employees:
• If you received gratuity: 1/3 of commuted value is exempt
• If you didn't receive gratuity: 1/2 of commuted value is exempt

Also Read -Pravasi Pension Scheme for NRIs & Residents

3. NRE vs NRO Fixed Deposit Interest

This is where many retiring NRIs lose money unnecessarily.

Interest on NRO accounts faces 30% TDS with no threshold exemption, unlike resident Indians who enjoy a ₹40,000 deduction.

How to Reduce NRO FD Tax: If you're a UAE resident, submit:

• Tax Residency Certificate (TRC) from UAE
• Form 10F
• Self-declaration The bank can then apply the DTAA rate (12.5%) instead of 30%, saving you 17.5% on every rupee of interest.

Compare current NRI FD rates across NRE, NRO, and GIFT City options with our comparison tool.

4. Mutual Fund Capital Gains

For NRIs, equity mutual funds are taxed at 20% for short-term capital gains (STCG) and 12.5% on long-term capital gains (LTCG) above ₹.25 lakh.Debt funds face STCG at slab rates and LTCG at 12.5% without indexation.

DTAA Benefit: As mentioned earlier, recent tribunal rulings suggest UAE residents may be exempt from capital gains tax on mutual funds in India.

5. Property Rental Income

Rental income from Indian property is taxable in India at slab rates. You can claim 30% standard deduction on rental income.

How to Reduce Tax:

• Claim deductions for property tax, repairs, and interest on home loan
• If you're in a DTAA country, rental income is typically taxed in India (source country), and you claim FTC in your resident country
• Consider the new tax regime vs old regime to see which gives you better deductions

6. Capital Gains on Property Sale

Long-term capital gains (LTCG) on property are taxed at 12.5% without indexation in India.

Tax-Saving Strategy: Under Section 54, NRIs can claim exemption on LTCG by reinvesting proceeds in a new residential property in India within specified time limits. We've covered this extensively in our guide on selling Indian property as an NRI.

Also Read - How Inflation in India Impacts Your Retirement Savings from the UAE.

Step-by-Step: How to Claim DTAA Benefits

Here's exactly what you need to do to avoid double taxation:

Step 1: Determine Your Residential Status

Your tax obligations depend entirely on your residential status under the Income Tax Act.

Use our Residential Status Calculator to check if you're:

• Resident
• Non-Resident (NRI)
• Resident but Not Ordinarily Resident (RNOR)

Only residents are taxed on global income. NRIs are taxed only on Indian-sourced income.

Step 2: Obtain Tax Residency Certificate (TRC)

You must obtain a TRC from the country where you're a tax resident. This serves as proof of your residency status and is mandatory to claim DTAA benefits.

For UAE residents, apply through the Federal Tax Authority (FTA) online portal. Processing typically takes 2-3 weeks.

Step 3: Submit Form 10F

Form 10F is a declaration form you submit to your Indian bank or payer (landlord, company paying dividends, etc.) along with your TRC.

This form includes details like:

• Your taxpayer identification number (TIN) in the resident country
• Address
• Tax residency status
• Period of residency

\Recently, non-residents can register and file Form 10F even without a PAN, making it easier for those new to Indian tax compliance\</cite>.

Step 4: Request Lower TDS

Once you submit TRC and Form 10F to your bank or payer, they can deduct TDS at the DTAA rate instead of the standard rate.

Example: On your NRO FD earning ₹5 lakh interest, instead of ₹1.5 lakh TDS (30%), the bank will deduct ₹62,500 (12.5%), saving you ₹87,500 annually.

Step 5: File Income Tax Return and Claim FTC

\When filing your ITR in India, you must file Form 67 to claim Foreign Tax Credit for taxes paid abroad\</cite>.

In Form 67, declare:

• Foreign income earned
• Foreign taxes paid (with proof)
• TIN in the foreign country
• Details of the DTAA article under which you're claiming relief

\The foreign tax paid will be converted to INR using SBI's telegraphic transfer buying rate\</cite>.

👉 Tip: Always file your ITR even if your income is below the taxable threshold. \This creates a record and makes refund claims easier if excess TDS was deducted\.

Investment Strategies to Minimize Double Taxation in Retirement

Beyond DTAA claims, you can structure your retirement portfolio to minimize tax leakage.

Strategy 1: Prioritize Tax-Free Investment Options

GIFT City Fixed Deposits This is where we at Belong have focused our efforts. GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre (IFSC), offering tax-free USD fixed deposits for NRIs.

Benefits:

• Tax-free interest (no TDS, no income tax)
• USD-denominated (protects against rupee depreciation)
• Up to 4-6% returns
• Fully repatriable
• Regulated by IFSCA

We've built an entire ecosystem at Belong around GIFT City investments because they eliminate double taxation concerns entirely.

Compare GIFT City FD rates with traditional NRE/NRO deposits using our tool.

NRE Fixed Deposits NRE account interest is completely tax-free in India. If your resident country doesn't tax Indian bank interest (like the UAE), you pay zero tax overall.

National Pension Scheme (NPS) NPS allows deductions up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B) in the old tax regime. At withdrawal, 60% is tax-free.

Strategy 2: Time Your Return to India

Your first year back in India offers unique tax planning opportunities.

If you withdraw from your 401(k) the year after returning to India, you'll likely be in a lower tax bracket (no US income) than if you withdrew while still working abroad.

This can save you 10-15% in US taxes.

Strategy 3: Split Income Across Years

Instead of taking a large lump sum withdrawal from your foreign retirement account (which pushes you into a higher tax bracket), spread withdrawals across 3-5 years.

Example: Instead of withdrawing $300,000 in one year (high tax bracket), withdraw $60,000 annually for 5 years (lower bracket each year).

Strategy 4: Use Tax-Efficient Investment Accounts

As a returning resident, you can now invest in:

• Equity Linked Savings Scheme (ELSS) for Section 80C deductions
• Senior Citizen Savings Scheme (SCSS) - offers up to ₹30 lakh investment with 8.2% interest and tax benefits(source)
• • Tax-free bonds
• Alternative Investment Funds (AIFs) in GIFT City

Strategy 5: Maintain Optimal Residential Status

The RNOR (Resident but Not Ordinarily Resident) status provides the best of both worlds-you're considered a resident for visa purposes but your foreign income isn't taxed in India.

You qualify as RNOR if you've been an NRI for 9 out of the past 10 years. You can hold this status for up to 2 years after returning to India.

During this period:

• Foreign pension income: Not taxable in India
• Foreign rental income: Not taxable in India
• Indian income: Taxable in India

👉 Tip: Plan your return to India to maximize your RNOR period. This can save lakhs in taxes on foreign pension withdrawals.

Common Mistakes That Cost Retiring NRIs Thousands

Mistake 1: Not Filing Form 10-EE for Section 89A

Many returning NRIs don't even know about Section 89A. By not filing Form 10-EE, you lose the deferral benefit and face immediate taxation on foreign retirement account accruals.

Fix: File Form 10-EE before your ITR due date every year.

Mistake 2: Not Obtaining TRC

Without a TRC, banks and payers must deduct TDS at the maximum rate (30%). Many NRIs lose thousands because they don't obtain this simple document.

Fix: Apply for TRC 2-3 months before returning to India.

Mistake 3: Keeping All FDs in NRO Accounts

NRO interest faces 30% TDS. If you don't need rupee deposits for Indian expenses, shift funds to NRE or GIFT City accounts.

Fix: Review your account structure annually. Our Compliance Compass helps you check if your accounts align with your goals.

Mistake 4: Not Claiming Foreign Tax Credit

You paid taxes in the US on your pension. If you don't file Form 67 and claim FTC in India, you'll pay taxes twice.

Fix: Hire a CA familiar with cross-border taxation or join our WhatsApp community where members share CA recommendations.

Mistake 5: Ignoring Currency Conversion Impact

Your 401(k) is in USD. When you withdraw and convert to INR, currency fluctuations can significantly impact your tax calculation and purchasing power.

Track live rates with our Rupee vs Dollar Tracker to time your conversions better.

Mistake 6: Not Planning for RMDs

US law requires Required Minimum Distributions (RMDs) from 401(k) accounts starting at age 73 (or 75 for individuals born in 1960 or later). If you're an Indian resident by then, these forced withdrawals could push you into a higher tax bracket. (source)

Fix: Consider Roth conversions before returning to India, or plan your return timing around RMD schedules.

Practical Retirement Tax Planning Example

Let's put everything together with a real-world scenario:

Profile:

• Rajesh, 58, worked in Dubai for 22 years
• Returning to India in April 2025
• Foreign assets: $250,000 in 401(k), AED 500,000 in UAE bank
• Indian assets: ₹1 crore in NRO FDs, rental property earning ₹40,000/month, ₹50 lakh in mutual funds

Without Planning:

• 401(k) growth taxed immediately in India: ~₹3-5 lakh annually
• NRO FD interest (₹7 lakh) taxed at 30%: ₹2.1 lakh
• Rental income taxed at 30%: ₹1.44 lakh
• Total annual tax: ~₹7 lakh

With Planning:

1. Files Form 10-EE for Section 89A: Defers 401(k) taxation until withdrawal (saves ₹3-5 lakh immediately)
2. Obtains UAE TRC and submits Form 10F: Reduces NRO FD TDS from 30% to 12.5% (saves ₹1.23 lakh annually)
3. Moves ₹50 lakh from NRO to GIFT City FDs at 5% USD: Tax-free interest instead of 30% taxed (saves ₹1.05 lakh annually)
4. Claims 30% standard deduction on rental income: Reduces taxable rental to ₹28,000/month (saves ₹43,200)
5. Times 401(k) withdrawals to start in FY 2026-27 when in lower bracket: Saves 10-15% on US taxes
6. Maintains RNOR status for 2 years: Foreign pension income remains tax-free for 2 years

Result: Rajesh saves approximately ₹5-6 lakh in the first year alone and defers significant tax liability on his 401(k).

Should You Hire a Cross-Border Tax Advisor?

Here's when you absolutely need professional help:

Hire a CA if:

• You have retirement accounts in multiple countries
• Your annual foreign income exceeds ₹25 lakh
• You own foreign property
• You're unsure about your residential status
• You need to file returns in multiple countries

DIY if:

• Your situation is simple (single country, single retirement account)
• You have time to research and file forms yourself
• Your income is below ₹15 lakh annually

At Belong, we've partnered with SEBI-registered advisors who specialize in cross-border taxation. Our community members regularly share experiences with CAs who understand both Indian and international tax laws.

Your Next Steps

Retirement should be about relaxation and enjoying the fruits of your hard work-not about worrying whether you're paying taxes twice.

Here's what to do right now:

1. Check your residential status: Use our Residential Status Calculator to understand your current tax classification

2. Review your retirement accounts: List all your pensions, investment accounts, and their locations

3. Calculate potential tax impact: Estimate how much you could save with DTAA and Section 89A (use our community for this)

4. Obtain your TRC: If you're planning to return to India within 2 years, apply for your TRC now

5. Restructure investments: Move taxable deposits to tax-free options like GIFT City FDs or NRE accounts

6. Join our community: WhatsApp group where over 8,000 NRIs discuss real tax strategies that work

7. Explore GIFT City options: Download Belong app to open tax-free USD fixed deposits in minutes

Final Thoughts

Double taxation doesn't have to eat into your retirement savings.

With the right planning-using DTAA benefits, Section 89A relief, tax-efficient investment accounts like GIFT City FDs, and proper timing-you can legally minimize your tax burden and keep more of what you've earned.

The key is to start planning at least 1-2 years before you return to India. Don't wait until you've already changed your residential status.

At Belong, we've built a platform specifically to solve these challenges. Our GIFT City investment options eliminate double taxation worries entirely, our tools help you stay compliant, and our community provides the peer support you need during this transition.

Ready to take control of your retirement taxes?

Download the Belong app to explore tax-free USD fixed deposits

Join our WhatsApp community to discuss strategies with other retiring NRIs

Use our Residential Status Calculator to check your tax classification

Your retirement should be spent enjoying life, not fighting tax authorities in two countries. Plan ahead, use the tools available, and keep more of your hard-earned money.

Sources:

1. Income Tax Act 1961, Government of India
2. Double Taxation Avoidance Agreements - Income Tax Department
3. Section 89A - Tax Relief on Foreign Retirement Funds - ClearTax
4. India-UAE DTAA Full Text
5. NRI Taxation Rules - ICICI Bank
6. Reserve Bank of India - FEMA Guidelines
7. International Financial Services Centres Authority (IFSCA)