“What happens to my 401(k) if I move back?” is the most-asked question in this corridor
and one of the worst-served. The treaty answers it, and the answer has a shape nobody expects:
private pensions and social security go in opposite directions. One is taxable where
you live. The other is taxable where it came from. And the first rule rests entirely on a definition
most people have never read.
The money and the move
The rulebook, verified
A private pension is taxable only where you LIVE verified
The treaty provides that ANY PENSION, other than a government-service pension, OR ANY ANNUITY DERIVED BY A RESIDENT OF A CONTRACTING STATE FROM SOURCES WITHIN THE OTHER CONTRACTING STATE MAY BE TAXED ONLY IN THE FIRST-MENTIONED CONTRACTING STATE. Read that with a person in it: somebody living in India drawing a private pension sourced in the United States is, on this Article, taxable on it only in India. The residence country wins, and the source country steps back.
US–India income tax treaty, Article 20(1)primary sourceverified 2026-08-27
Social security goes the OPPOSITE way — taxable only at source verified
The very next paragraph reverses the direction: 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. So American social security paid to somebody living in India is taxable only in the United States — the source country keeps it. Two paragraphs, two opposite rules, and people routinely apply the one they heard about to the money it does not cover.
US–India income tax treaty, Article 20(2)primary sourceverified 2026-08-27
“Pension” means a PERIODIC payment — which a lump sum is not verified
The Article defines its own terms. A pension is A PERIODIC PAYMENT MADE IN CONSIDERATION OF PAST SERVICES or by way of compensation for injuries received in the course of performing services. An annuity is STATED SUMS PAYABLE PERIODICALLY AT STATED TIMES during life or a specified number of years, under an obligation to make the payments in return for adequate and full consideration in money or money's worth — expressly NOT for services rendered. Both definitions turn on payments made periodically. A single withdrawal of an entire balance is not obviously either, and the plan most people arrive with — take it all out and move on — is exactly the one that sits outside these words.
US–India income tax treaty, Article 20(3) and 20(4)primary sourceverified 2026-08-27
For a US citizen, the saving clause spares paragraph 2 but not paragraph 1 verified
The saving clause lets a State tax its citizens as if the treaty had not come into effect, and then lists what it does NOT affect — including PARAGRAPHS 2 AND 6 OF ARTICLE 20. Paragraph 1 is not on that list. So an American citizen living in India keeps the protection of the social-security rule, and does NOT keep the private-pension rule: the United States may tax that pension regardless of where they live. A non-citizen whom the treaty places in India is in a different position, because for them the saving clause reaches only people Article 4 makes US residents.
US–India income tax treaty, Article 1(3) and 1(4)primary sourceverified 2026-08-27
This page will not tell you whether your distribution is a “pension” or
an “annuity” inside those definitions. That is the whole substance of the question, there is real
argument on both sides for a lump sum, and it turns on the plan's own terms and on how the money is
actually taken — a cross-border preparer's judgement, not a page's. What it does is show which rule
would apply once that is settled, and put the definitional cliff in front of you before you choose
how to take the money rather than after. It also says nothing about Indian tax treatment of a US
retirement account: that is Indian law and no primary source for it was read here. The withholding
that happens on the way out is a separate mechanism, at Thirty Percent,
At Source; what a green-card holder risks by claiming treaty residence is at
The Tie-Breaker.
We already computed the public version — it is complete and stays free.
Keep your accounts and your move dates in one place: Join DesiSquare and the Square remembers your dates, re-runs this
when the rules change, and puts a credentialed human one message away.