Non-Resident Indians (NRIs) who have maintained retirement benefit accounts in notified countries face specific tax rules under the Direct Tax Code (DTC) 2025. Section 158 read with Rule 74 provides a tax election mechanism that allows NRIs to defer taxation on income accrued in such accounts until withdrawal or redemption. This guide explains the retirement benefit account taxation election for NRIs moving to notified countries.
The Retirement Benefit Account Framework
Section 158 — Relief from Taxation in Retirement Benefit Account
Section 158(1) provides that "The income accrued to a specified person in a specified account shall be taxed in such manner and in such tax year, as may be prescribed."
Section 158(2) — Definitions
- "Notified country" means a country as may be notified by the Central Government
- "Specified account" means an account maintained in a notified country by the specified person for his retirement benefits, the income from which is taxed by that notified country at the time of withdrawal or redemption and, not on accrual basis
- "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
The Taxation Election — Rule 74
Rule 74(1) — Option to Defer Taxation
If a specified person has income accrued in a specified account or accounts during a tax year, such income shall, at his option, be included in his total income of the tax year in which income from the said account or accounts is taxed upon withdrawal or redemption, as the case may be, in the notified country.
Rule 74(2) — Income Not Taxable
Where the option has been exercised by a specified person under sub-rule (1), the total income of the specified person for the tax year in which income is taxable under sub-rule (1) shall not include the income which:
- Has already been included in the total income of such specified person in any of the earlier tax years during which such income accrued and tax thereon has been paid in accordance with the provisions of the Act; or
- Was not taxable in India, in the tax year during which such income accrued, on account of:
- Such specified person being a non-resident, or not ordinarily resident as referred to in Section 6(13), during that tax year; or
- Application of the Double Taxation Avoidance Agreement, if any
Rule 74(3) — Exercise of Option
The option under sub-rule (1) by the specified person shall be exercised:
- In respect of all the specified accounts maintained by the specified person
- In Form No. 40, which shall be furnished on or before the due date specified under Section 263(1)(c)
Rule 74(4) — Change in Residency Status
In a case where the specified person becomes a non-resident during any relevant tax year, then:
- The option exercised under sub-rule (1) shall be deemed to have never been exercised with effect from the relevant tax year
- The income which has accrued in the specified account or accounts during the period, beginning with the tax year in respect of which the option was exercised and ending with the tax year immediately preceding the relevant tax year, shall be taxable during the tax year immediately preceding the relevant tax year, and tax shall be paid on or before the due date of filing the return of income for the relevant tax year
Rule 74(5) — Irrevocable Option
Once the option is exercised for a specified account or accounts in respect of a tax year under sub-rule (1) in Form No. 40, it shall apply to all subsequent tax years and cannot be subsequently withdrawn for the tax year for which the option was exercised, or for any subsequent tax year.
Application to NRIs
Who is a Specified Person?
A specified person is 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.
What is a Notified Country?
A notified country is a country notified by the Central Government. NRIs who have retirement accounts in such countries may be eligible.
What is a Specified Account?
A specified account is an account maintained in a notified country for retirement benefits, where income is taxed by that country at withdrawal or redemption, not on accrual basis.
Filing Form 40
Purpose of Form 40
Form No. 40 is the prescribed form for exercising the taxation election under Rule 74.
Filing Requirements
- The option must be exercised in respect of all specified accounts
- Form 40 must be furnished on or before the due date for filing the return of income
Practical Compliance for NRIs
1. Determine Eligibility
- Determine whether the country is a notified country
- Determine whether the account qualifies as a specified account
- Determine whether the NRI qualifies as a specified person
2. Consider the Option
- Consider whether to exercise the option
- Consider the tax implications of exercising the option
- Consider the tax implications of not exercising the option
3. File Form 40
- File Form 40 on or before the due date
- Ensure the form is complete and accurate
4. Maintain Records
- Maintain records of the specified account
- Maintain records of income accrued
- Maintain records of tax paid
5. Monitor Residency Status
- Monitor changes in residency status
- If becoming non-resident, consider the implications
Consequences of Non-Compliance
Tax on Accrued Income
If the option is not exercised, income accrued in the specified account may be taxable on an accrual basis.
Interest and Penalty
Non-compliance may result in interest and penalty.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on retirement benefit account taxation for NRIs. Our international tax experts help NRIs understand the election framework, complete Form 40, and navigate the regulatory framework. We assist in eligibility assessment, documentation, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on retirement benefit account taxation or any other international tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex retirement benefit account taxation framework for NRIs requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive international tax advisory services, including:
- Eligibility Assessment: Evaluation of election eligibility
- Form 40 Filing: Assistance with Form 40 preparation and filing
- Tax Planning: Guidance on tax implications
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your retirement benefit account matters.