Rule 21AAA: Tax relief on income arising from Foreign Retirement Funds: CBDT
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- Last Updated on 5 April, 2022
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Notification No. 24/2022, dated 04-04-2022
The Finance Act, 2021 has inserted a new section 89A to provide relief to residents who have income from foreign retirement benefits accounts. 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 However, the amount withdrawn from such account is chargeable to tax in India on the accrual basis.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.
Section 89A 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.
The Central Board of Direct Taxes (CBDT) has notified Rule 21AAA 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 Further, once this option is exercised, it will apply to all subsequent previous years and cannot be withdrawn.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.
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Which are the notified countries for Rule 21AAA?
Hi Saral Das, CBDT has notified ‘Canada’, ‘United Kingdom of Great Britain & Northern Ireland’ and ‘USA’ for Sec. 89A
In the above context, in ITR2 Schedule S line 1(d), Income from retirement benefit account maintained in a notified country u/s 89A is ONLY for reporting actual withdrawal when the notified country taxes the specified person, right?
And line 3(a) “Income claimed for relief from taxation under Section 89A”? is to claim any accruals already reported to IT and details given in form 10EE.
Should accruals (not withdrawn yet) still be shown in Schedule FA?