Tax relief on income from Foreign Retirement Benefit

Home > Income Tax > Help Center > Tax relief on Foreign Retirement Benefit Last Updated: Dec 08th 2023

Section 89A was introduced in Budget 2021 to provide a relief from taxation on Income earned from foreign retirement benefit account, maintained in notified country.

The Central Board of Direct taxes has notified Rule 21AAA, form 10EE and notified country for the purpose of section 87A of the Income Tax Act,1961.

Read more on the relief, examples and the consideration during tax filing.

This document covers

Introduction of Section 89A
Rule 21AAA
Affect when change in Residential Status
Specified Person
Specified Account
Notified Countries
Forms Required to be filed

1. Introduction of Section 89A

The Finance Act 2021 had introduced new section 89A in the Income Tax Act, 1961. Section 89A is applicable w.e.f April 2022 i.e., AY 2022-23

Income from Foreign retirement accounts will be taxable on accrual basis in India whereas withdrawal from such funds might be taxed on receipt basis in some foreign countries. To address the mismatch in taxation of income earned by Resident Indians from notified overseas retirement fund, section 89A was introduced.

EXAMPLE

Mr Ram worked in USA for 10 years. He was Non-Resident to India till FY 2020-21. He contributed to Retirement benefit account in USA while he was Non-Resident to India. Mr Ram returned to India in FY 2021-22, and he was resident of India for FY 2021-22.

Income accrued to Mr Ram Retirement benefit account upto FY 2020-21 is not taxable as he was NRI to India. But for FY 2021-22, he is resident to India and the accruals in retirement benefit account in USA is taxable in India whereas income from retirement benefit account is taxable in USA on receipt basis (Year of receipt).

As no tax was paid in USA in FY 2021-22 (between Jan to Mar), Mr Ram is not eligible to claim foreign tax credit against Indian tax liability in FY 2021-22

To address above mismatch and remove the genuine hardship, Section 89A has been introduced

2. Rule 21AAA

Taxation of income from retirement benefit account maintained in a notified country

If the Income of a specified person includes the income accrued in a specified accounts during the financial year starting from FY 2021-22 or thereafter, such income shall be taxable in the financial year same as time of withdrawal or redemption in notified country
If the option has been exercised by a specified person, then the total income of the specified person for the FY 2021-22 and thereafter shall not include the income which has already been included in the earlier previous years and the taxes has been paid

3. What happens if the specified person becomes an NRI in subsequent financial year?

If the specified person becomes an NRI in the subsequent financial years after exercising the option u/s 89A, the option exercised by the specified person shall be deemed to have never been exercised with effect from such financial year.

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4. Who is a Specified Person ?

Specified person means a person resident in India who has opened a specified account in a notified country while being Non resident in India and a resident in that country.

5. What is a Specified Account (Retirement Benefit Account) ?

Specified account means an account maintained in a notified country by the specified person in respect of their 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 of income or redemption.

6. Notified Countries

Notified Country means a country as may be notified by Central Government. Central Government has also notified the following countries as notified country