Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately preceding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.