Taxation of Income from Overseas Retirement Fund

Niranjan Shah

Chartered Accountant
NRI Taxation, Business Valuation Consultant, Start-up Advisory,
International tax and transfer pricing Consultant

Every country has its own retirement funds or contribution plan for retirement benefits as social security measure. Generally, in most of the countries including India taxation of such domestic funds are at the time receipt / withdrawal. However, income from overseas
retirement funds in case of a person who is ordinarily resident of India, is taxed in on an accrual basis. This leads to mismatch in timing of taxation of this particular stream of income which is accrued in retirement funds held foreign jurisdiction. Section 89A of the income tax
act was introduced to address this issue and provide relief to tax payers returning to India. Section 89A of the Act provides that where a specified person has income accrued in a specified account, such income shall be taxed in such manner as may be prescribed.

a) Notified country: Currently, USA, Canada and UK [Notification No 25 dated 04 April 2022]

b) Specified person means a person resident in India who opened a specified account in a notified country while being non-resident in India and resident in that country.

c) Specified account means an account maintained in a notified country by the specified person in respect of his retirement benefits and the income from such account is not taxable on accrual basis but is taxed by such country at the time of withdrawal or redemption.
Rule 21AAA has been notified by CBDT vide notification No 24 dated 04 April 2022 with effect from AY 2022-23 to provide that Income accrued in a specified account, at the option of the specified person, be included in his total income in the year in which income from the
said specified account is taxed at the time of withdrawal or redemption in the notified country.

Income not to be included if option exercised

In case option exercise by the specified person, income of such person does not include following income.

i) Income which is already included in total Income in previous years and tax paid thereon

ii) Income which is not taxable due to following reasons

          a) Specified person was non-resident or resident but not ordinary resident
          b) Application of the Double Taxation Avoidance Agreement (DTAA)

In above case, foreign tax paid on such income shall be ignored

Miscellaneous

– The option shall be exercised by the specified person qua specified account

– The option exercised by the specified person, shall be in Form No. 10-EE which shall be filed on or before due date of filing income tax return.

– The option once exercised shall apply to all subsequent previous years and cannot be subsequently withdrawn.

What if person become Non-resident subsequently?

In case person become Non-resident subsequently then the option exercised shall be deemed to have never been exercised and the income which has accrued in the specified accounts from relevant previous year in which the option was exercised and ending with the previous year immediately preceding the relevant previous year, shall be taxable during the previous year immediately preceding the relevant previous year and tax shall be paid on or before the due date for furnishing the return of income for the relevant.