While presenting the Budget 2021 direct tax proposals in the Parliament on 1st February 2021, Finance Minister Nirmala Sitaraman announced for providing relief from double taxation to non-resident Indians (NRIs) on money accrued in foreign retirement accounts.
She stated that when Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts.
This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions.
She proposed to notify rules for removing their hardship of double taxation. Budget 2021 provides the following relief to NRIs-
Relaxation to NRI for Income of Retirement Benefit Account
In order to remove the genuine hardship faced by the NRIs in respect of their income accrued on foreign retirement benefit account due to mismatch in taxation, it is proposed to notify rules for aligning the taxation of income arising on foreign retirement benefit account.
The government will soon notify rules regarding the taxability of such withdrawal or redemption proceeds from NRIs’ foreign retirement accounts.
The budget proposes that the rules in this regard will provide for the timing, manner of taxation and mode of mitigating double taxation on the foreign retirement corpus for NRIs.
For this purpose, a new Section 89A is proposed to be inserted into the Income Tax Act, 1961 vide Clause 28 of the Finance Bill, 2021.
Insertion of new section 89A.
28. After section 89 of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2022, namely:–
‘89A. Where a specified person has income accrued in a specified account, such income shall be taxed in such manner and in such year as may be prescribed.
Explanation.––For the purposes of this section,–
(a) “specified person” means a person resident in India who opened a specified account in a notified country while being non-resident in India and resident in that country;
(b) “specified account” means an account maintained in a notified country by the specified person in respect of his 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 or redemption;
(c) “notified country” means a country as may be notified by the Central Government in the Official Gazette for the purposes of this section.’.
The provisions of Section 89A explained
Clause 28 of the Bill seeks to insert a new section 89A in the Income-tax Act relating to relief from taxation in income from retirement benefit account maintains in a notified country.
The proposed new section provides that the income of a specified person from specified account shall be taxed in such manner and for such year as may be provided by rules and also defines the expressions “specified person”, “specified account” and “notified country”.
This amendment will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-23 and subsequent assessment years.
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