ARTICLE 20

Private Pensions, Annuities, Alimony and Child Support

This Article deals with the taxation of private (i.e., non-government) pensions, annuities, alimony payments, and child support payments. The rules of this Article do not apply to items of income which are dealt within Article 19 (Remuneration and Pensions in Respect of Government Service), including pensions or social security benefits in respect of government service.

Paragraph 1 provides that private pensions and any annuities derived by a resident of a Contracting State from sources within the other Contracting State are taxable only in the State of residence of the recipient.

Paragraph 2 provides a different rule for social security benefits and other public pensions (other than those which are dealt within Article 19) paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States. Such payments are taxable only in the Contracting State that pays them.

Paragraph 3 defines the term "pension" for purposes of mean a periodic payment made in consideration of or by way of compensation for injuries received in performance of services. Thus, the definition the pension definition a single lump-sum payment.

Paragraph 4 defines the term "annuity" for purposes of Article 20 to mean stated sums payable periodically at stated times during life or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration in money or money's worth (but not for services rendered).

Paragraph 5 deals with alimony payments. It provides that alimony paid to a resident of a Contracting State shall be taxable only in that State. The term "alimony" as used in this paragraph means periodic payments made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support, which payments are taxable to the recipient under the laws of the State of which he is a resident. Under U.S. law, alimony is generally deductible to the payer and taxable in the hands of the recipient. Such payments made by Indian residents, therefore, fall within the terms of paragraph 5, and are taxable only in the United States.

Paragraph 6 deals with periodic payments for the support of a minor child made pursuant to a written separation agreement or a decree of divorce, separate maintenance or compulsory support. Paragraph 6 provides that such child support payments paid to a resident of a

Contracting State by a resident of the other Contracting State shall be taxable only in the State of the payer's residence.

This Article 20 is identical to Article 20 of the U.S. Model except that this Article 20 contains a definition of the term "pension"; under this definition, a payment must be, among other things, a periodic payment in order to qualify. Thus, all payments under this Article (pensions, annuities, alimony and child support) must be periodic payments, and a single lumpsum payment does not qualify. A pension under the U.S. Model is considered to include a single lump-sum payment. A single lump-sum payment received under a pension plan would be treated as other income under Article 23. Thus, such a payment would be taxable only in the Contracting 3tate of which the income recipient is a resident unless the income arises in the other Contracting State. Income that arises in the other State may also be taxed by that other State.

Paragraphs 2 (concerning social security benefits and other public pensions) and 6 (concerning child support payments) of Article 20 are not subject to the saving clause of paragraph 3 of Article 1 (General Scope) of the Convention. The benefits of these paragraphs, therefore, are not overridden by any contrary provisions of the Code. Thus, if, for example, a U.S. citizen who is resident in the United States receives a social security benefit payment from the Indian Government or a child support payment from an Indian resident, that payment is exempt from U.S. tax under paragraph 3 of Article 1, notwithstanding the existence of a tax liability under the Code.