In 2021, the Finance Act introduced Section 89A in the Income Tax Act, 1961 to grant tax relief to residents earning from foreign retirement funds like 401k or IRA, while residing in India. Previously, there was a clash in tax timing: foreign accounts were taxed upon withdrawal abroad but on an accrual basis in India, complicating foreign tax credit claims and DTAA benefits, particularly for NRIs returning to India post-retirement.

Consider an Indian resident who previously worked in the UK for a petroleum company. As an NRI until the financial year 2022-23, his UK retirement savings were not taxable in India. Upon becoming a resident in 2023-24, dividends, interest, and capital gains from his UK retirement account became taxable in India but not yet taxed in the UK.

The introduction of Section 89A allows income from such foreign accounts to be taxed only at withdrawal, aligning taxation with the relevant foreign country. This change, effective April 1, 2022, affects assessments from AY 2022-23 onwards. As per Section 89A, the government specifies how and when such income will be taxed. It concerns a "specified person," defined as a resident with retirement accounts in notified countries from a time when they were non-residents in India.

The Central Board of Direct Taxes (CBDT) has identified the US, UK, and Canada as notified countries. NRIs can claim relief by filing Form 10-EE under Rule 21AAA, which dictates that foreign retirement income is added to the total income during the withdrawal year and is exempt if already taxed per the ITA or covered by a DTAA.

Form 10-EE must be e-filed before submitting the Income Tax Return (ITR), applying to all future years. If the person becomes a non-resident later, it's as though the option wasn't exercised, and accrued income during the option years will be taxed. The updated ITR forms include Schedule-S for salary and Schedule OS for other sources, to claim relief under Section 89A, deferring tax until withdrawal.

Key Points for Section 89A Relief:

• Form No. 10-EE must be filed before the ITR.
• The option, once chosen, applies perpetually unless residency status changes.
• If residency reverts to non-resident post-election, accrued income is taxable for those past years.

Steps to file Form 10-EE:

1. Log into the income tax e-filing portal.
2. Navigate to e-file > Income tax forms > File Income tax forms.
3. Select and complete Form 10-EE for the chosen assessment year.
4. Enter details like account numbers, names, opening year, taxation rules, eligible withdrawal years, and attach account statements.
5. Submit the form after completion.

These steps align tax obligations with the rules of notified countries, ensuring Indian residents and former NRIs face no tax disputes.