Indian Provident Fund (PF) Tax in the UK | NRI Tax Guide

If you’re a Non-Resident Indian (NRI) now living in the UK, you may be wondering: “Is my Indian Provident Fund (PF) taxable in the UK?”

This is a common question for UK tax residents who contributed to a PF while working in India. The UK tax system is based on worldwide income, which means your foreign earnings and withdrawals—including from retirement accounts—may be taxable in the UK.

In this article, we explain the UK tax implications of receiving your Indian Provident Fund, how the Double Taxation Avoidance Agreement (DTAA) between the UK and India plays a role, Know About 25% tax free Lump Sums and practical steps to stay compliant while saving tax.

---

What Is the Indian Provident Fund (PF)?

The Employees’ Provident Fund (EPF) is a retirement savings scheme where both the employer and employee contribute monthly during your employment in India. The fund earns interest over time and is usually withdrawn at retirement or upon leaving India.

Withdrawals from the PF typically include:

• Employee contributions
• Employer contributions
• Interest accrued on both

While this may be tax-free in India under certain conditions, things change when you become UK tax resident.

---

When Does the UK Tax Apply to Indian PF Withdrawals?

UK residents are subject to tax on worldwide income, including lump sum payments and pension-type withdrawals from overseas schemes.

✅ Key Date: 6 April 2017

If your Indian PF has accrued value before you became a UK resident or before 6 April 2017, the UK may not tax that portion of the fund. This is part of the “transitional protection” HMRC introduced to avoid unfair taxation of previously earned foreign pension rights.

However, amounts accrued after you became a UK resident or after 6 April 2017 are likely subject to UK tax. It is essential to keep historical account statement record of your capital contribution following to April 2027 made towards fund lifecycle, some part may qualify for deduction.

🔍 Example:

Let’s say:

• You moved to the UK on 1 April 2020
• Your PF had ₹8,00,000 as of 6 April 2017
• It grew to ₹15,00,000 by the time you withdrew in 2025

Then:

• The original ₹8,00,000 might be protected from UK tax
• The post-2017 or post-UK residency growth (₹7,00,000) may be taxable in the UK.
• You may qualify deduction for post -2017 capital contribution if source of funds is traced split in contribution from employer’s, employee’s and interest accrued over time periodically.
• Check if qualify to apply deduction of 25% of tax free lumpsum received from overseas qualified pension fund equivalent to UK pension
• There may be further relief can apply based on DTAA between India and UK.

---

How Is the Indian Provident Fund (PF) Taxed in the UK?

The UK generally taxes:

• Lump sum withdrawals from foreign pension schemes
• Growth or interest accrued after becoming UK tax resident

Depending on the specific structure of your PF, HMRC might treat it:

• As foreign pension income (subject to income tax)
• As a capital gain (rare, but possible type of fund that are not essentially nature of pension)
• Or may apply special rules under Chapter 2 of Part 9 of the Income Tax (Earnings and Pensions) Act 2003

For most individuals, the taxable portion will be added to your income and taxed at your marginal rate (20%, 40%, or 45%).

---

What About Tax in India?

Under Indian tax law, PF withdrawals can be fully or partially exempt, depending on:

• Completion of 5 years of continuous service
• Reason for leaving employment
• Maturity of the scheme

But even if India doesn’t tax it, you still need to report it in the UK. This brings us to the Double Tax Agreement.

---

UK-India Double Taxation Agreement (DTA)

The UK–India DTA helps prevent you from being taxed twice on the same income. Here’s how it works:

1. Check if India has already taxed your PF
   • If yes, you may be able to claim Foreign Tax Credit Relief (FTCR) in the UK
2. If India has not taxed it, then the full UK tax may apply on the taxable portion
3. Article 18 of the UK-India DTA generally gives taxing rights to the country of residence (i.e. the UK)

You must disclose the PF withdrawal in your UK Self-Assessment tax return, and correctly claim any relief under the DTA if applicable.

---

UK Tax Reporting Requirements

As a UK resident, you must:

• Report your foreign income and gains, including PF withdrawals, in the Self-Assessment tax return (SA100 + foreign income section SA106)
• Keep documentation of the fund statements and breakup between pre- and post-6 April 2017 contributions
• Maintain records in both INR and GBP using appropriate exchange rates (HMRC provides official yearly average rates)

---

Common Mistakes to Avoid

❌ Assuming tax-free in India means tax-free in the UK
❌ Not disclosing foreign pensions in the Self-Assessment return
❌ Missing out on Foreign Tax Credit Relief
❌ Not keeping a record of pre-UK residency balance of the PF

---

Final Thoughts & Professional Advice

The taxability of Indian PF in the UK is a complex area that depends on:

• Your UK tax residency status
• Date and amount of contributions
• Indian tax treatment
• Application of DTAA

It’s highly recommended to consult a UK-based tax advisor familiar with Indian tax matters to:

• Calculate the taxable amount correctly
• Avoid penalties from underreporting
• Optimize your tax position with FTCR and other reliefs

---

Book a Tax Consultation

If you’re unsure about your Indian PF or other foreign income, schedule a free 15 minutes call with us at Coreadviz Accountants.

Frequently Asked Questions (FAQs)