Income Tax Relief to income arising from retirement funds:
- Some countries tax income from such foreign retirement benefits accounts on receipt basis. However, the amount withdrawn from such account is chargeable to tax in India on the accrual basis. Due to the mismatch in the year of taxability, the taxpayers face difficulties in claiming the foreign tax credit.
- Finance Act 2021 has introduced Section 89A, which provides that the income of a specified person from the specified account shall be taxed in the manner and in the year as prescribed by the Central Government. A specified person means a resident person who opened a specified account in a notified country while being non-resident and resident in that country.
- Rule 21AAA has been notified prescribing manner for taxation of income from retirement benefits account maintained in a notified country. The rule provides that if a specified person has accrued any income in the retirement benefits account, then the same shall be included in his total income of the previous year, in which such income is taxed in the country wherein such account is maintained.
- To exercise this option, the specified person is required to e-file Form No. 10-EE on or before furnishing return of income. Further, once this option is exercised, it will apply to all subsequent previous years and cannot be withdrawn.
- However, if the specified person has become non-resident after exercising the option, then it shall be deemed that he has never exercised the option and income accrued in the specified account from the previous year in which such option was exercised shall be taxable in his hand.
(Notification No. 24/2022, dated 04-04-2022)
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