Relief from taxation in income from retirement benefit account maintained in a notified country.
158(1)
The income accrued in a specified account, maintained in a notified country by a specified person, shall be taxed in a tax year, as prescribed.
158(2)
In this section,—
- (a) “notified country” means a country as notified by the Central Government;
- (b) “specified account” means an account maintained in a notified country by the specified person for his retirement benefits, which is taxed by that notified country at the time of withdrawal or redemption and, not on accrual basis;
- (c) “specified person” means a person resident in India having opened a specified account in a notified country while being non-resident in India and resident in that country
Explanation
Section Summary:
This section provides relief from taxation on income accrued in a retirement benefit account maintained in a notified foreign country. The income from such an account will be taxed in India only in the tax year when it is withdrawn or redeemed, rather than on an accrual basis. This is designed to prevent double taxation for Indian residents who have retirement accounts in certain foreign countries.
Key Changes:
- Taxation Timing Shift: Previously, income from foreign retirement accounts might have been taxed on an accrual basis in India, leading to potential double taxation. This section now aligns the taxation timing with the foreign country’s rules, taxing the income only upon withdrawal or redemption.
- Notified Countries: The Central Government will specify which countries qualify for this relief, ensuring clarity on where this provision applies.
Practical Implications:
- For Indian Residents with Foreign Retirement Accounts: Taxpayers who opened retirement accounts while they were non-residents in India (but residents in a notified country) will now benefit from deferred taxation. They will only pay taxes in India when they withdraw or redeem funds from the account.
- Avoiding Double Taxation: This provision ensures that income is not taxed twice—once in the foreign country (on withdrawal) and again in India (on accrual).
- Compliance Burden: Taxpayers must ensure their foreign retirement accounts are in a "notified country" and meet the criteria of a "specified account."
Critical Concepts:
- Notified Country: A foreign country officially recognized by the Indian Central Government for this provision. Only accounts in these countries qualify for the relief.
- Specified Account: A retirement benefit account in a notified country where income is taxed by that country only upon withdrawal or redemption, not during accrual.
- Specified Person: An individual who is currently a resident of India but opened the retirement account while they were a non-resident in India and a resident of the notified country.
Compliance Steps:
- Verify Account Eligibility: Ensure the foreign retirement account is in a "notified country" and qualifies as a "specified account."
- Maintain Documentation: Keep records of the account opening date, residency status at the time of opening, and proof of taxation rules in the foreign country.
- Report Withdrawals: Declare income from the account in the tax year when withdrawals or redemptions occur, not during accrual.
Examples:
Scenario 1:
- Mr. A, an Indian citizen, worked in Country X (a notified country) for 10 years and opened a retirement account there. He returned to India in 2023 and became a resident.
- Under this section, Mr. A will not pay taxes in India on the income accruing in his retirement account. He will only pay taxes when he withdraws funds from the account in the future.
Scenario 2:
- Ms. B, a resident of India, has a retirement account in Country Y (not a notified country).
- This section does not apply to her account, and she may be taxed on an accrual basis in India, regardless of Country Y’s taxation rules.
This section simplifies tax compliance for Indian residents with foreign retirement accounts and aligns Indian tax rules with international practices.