Paying taxes in two countries can quickly become overwhelming, especially when foreign retirement income is taxed at different stages. Non-Resident Indians (NRIs) need to understand how NRIs can apply for tax deferment to avoid double taxation and manage global income more efficiently. In countries like the USA, retirement accounts are typically taxed only upon withdrawal, while Indian tax laws may tax the same income earlier. To address this issue, the Indian government introduced Section 89A, which allows eligible NRIs and returning Indians to defer tax on specified foreign retirement accounts and align taxation with the rules of the foreign country.
Need help with your NRI tax filing or Section 89A queries? Contact us for expert assistance.
What Is Tax Deferment?
Tax deferment means postponing tax payments instead of paying them immediately. It does not eliminate tax liability; it simply delays it to a future date.
For NRIs, tax deferment primarily applies to foreign retirement accounts such as:
- 401(k) plans
- IRA accounts
- Foreign pension schemes
- Retirement savings plans
Under Section 89A, income from these accounts is taxed in India only when it becomes taxable in the foreign country.
What Is Section 89A of the Income Tax Act?
Introduced by the Finance Act 2021, Section 89A for NRIs solves the “mismatch of taxation” problem for returned residents. It mandates that tax on foreign retirement accounts in notified countries is payable in the year the income is taxed in the foreign country.
- Effective Date: April 1, 2022 (AY 2022-23 and subsequent years).
- Key Regulation: Rule 21AAA prescribes the procedure.
- Notified Countries: As of 2026, these include the United States of America (USA), the United Kingdom (UK), Canada, Australia, and the Netherlands.
How Tax Deferment Works for NRIs?
For example, if an NRI worked in the USA and invested in a 401(k) retirement account:
- In the USA, tax is paid only upon withdrawal.
- After returning to India, India may impose tax on the annual growth or income from that account immediately.
This creates a timing mismatch in taxation. By claiming benefits under Section 89A, the taxpayer can defer Indian tax until the amount becomes taxable in the USA.
Who Is Eligible to Apply for Tax Deferment?
Tax deferment under Section 89A for NRIs is available to:
- NRIs with foreign retirement accounts
- Returning Indians who become Indian residents
- Individuals earning income from specified foreign retirement funds
The retirement account must be located in a country officially notified by the Indian government.
Benefits of Tax Deferment for NRIs
Section 89A offers several advantages:
- Avoid Double Taxation: Prevents paying taxes in India on foreign pension income that hasn’t been withdrawn yet.
- Cash Flow Management: Pay taxes only when the funds are actually received in the foreign account.
- Alignment of Jurisdictions: Matches the taxation of foreign retirement accounts with the tax rules of the country where the funds are held.
- Reduced Immediate Tax Burden: Allows tax on retirement funds to be deferred until the individual becomes a resident, ensuring compliance without immediate financial strain.
The retirement account must be located in a country officially notified by the Indian government.
Documents Required for Tax Deferment Application
To claim benefits under Section 89A, taxpayers typically need:
- PAN card
- passport details
- Foreign retirement account statements
- Foreign tax documents
- roof of residential status
- Income records
Proper documentation is crucial for smooth filing and compliance.
Step-by-Step Process to Apply for Tax Deferment in India
To know how NRIs can apply for tax deferment, follow the steps below:
- Open the Income Tax Portal: Log in to the e-filing portal of the Income Tax Department.
- File Form 10EE: You must do the Form 10-EE filing process electronically to exercise the option of deferring tax.
- Submission Deadline: Form 10EE must be filed before the due date for filing the income tax return (ITR) for the respective assessment year.
- Permanent Election: Once you elect to use Section 89A for a specific retirement account, it is irrevocable and applies to all subsequent years, unless you stop being a resident of India.
- Disclose in ITR: Ensure all details of the foreign retirement account taxation in India are properly reported in your annual ITR, citing the 89A relief.
What Is Form 10-EE?
Form 10-EE is a declaration form used to claim tax deferment under Section 89A. It includes:
- Retirement account details
- Foreign country information
- Income details
- Tax deferment declaration
Filing this form is essential for legally claiming the benefit.
Countries Eligible Under Section 89A
The provision primarily benefits NRIs returning from countries where retirement accounts (like 401(k), IRA in the US, or superannuation in Australia) are taxed upon withdrawal rather than accrual.
- USA: Specifically targets IRA and 401(k) plans.
- Canada: Registered Retirement Savings Plans (RRSPs).
- United Kingdom: Registered Pension Schemes.
- Australia: Superannuation accounts.
Common Mistakes NRIs Should Avoid
NRIs often encounter compliance issues due to:
- Missing deadlines for Form 10-EE
- Incorrect disclosure of foreign income
- Claiming benefits for non-eligible accounts
- Ignoring DTAA provisions
- Filing incomplete ITR information
Note: Accurate reporting is crucial to avoid notices and penalties.
Tax Deferment vs Tax Exemption
Many taxpayers confuse tax deferment with tax exemption. Here’s a comparison:
| Tax Deferment | Tax Exemption |
| Tax is paid later | Tax may not be paid at all |
| Temporary relief | Permanent relief |
| Common for retirement income | Common for exempt income |
Under Section 89A, the tax is postponed, not waived.
Tax Deferment vs DTAA Relief
Tax deferment and Double Taxation Avoidance Agreement (DTAA) relief are distinct concepts:
| Tax Deferment | DTAA Relief |
| Delays Taxation | Prevents double taxation |
| Applies to retirement accounts | Applies to cross-border income |
| Based on Section 89 A | Based on tax treaties |
In some situations, NRIs may benefit from both provisions simultaneously.
Latest Section 89A Updates for 2026
In 2026, Indian tax authorities are maintaining a strong focus on foreign asset reporting and the disclosure of global income. Non-Resident Indians (NRIs) should ensure the following:
- Timely filing of Form 10-EE
- Accurate reporting of retirement accounts
- Compliance with the updated Income Tax Return (ITR) requirements
Seeking professional tax guidance can be beneficial in navigating complex cross-border tax situations.
Conclusion
Section 89A provides significant relief for NRIs and returning Indians with foreign retirement accounts. By allowing the deferral of taxes, it aligns Indian taxation with foreign tax regulations, thereby addressing concerns about double taxation.
Ensuring timely filing, accurate disclosures, and knowing how NRIs Can Apply for Tax Deferment in India under Section 89A can assist taxpayers in managing their foreign retirement income more effectively while remaining compliant with Indian tax laws.
Disclaimer
The content published on NriTaxs is intended for informational purposes only and does not constitute legal, tax, or financial advice. Readers are encouraged to consult qualified professionals before making any decisions based on the information provided.
