With globalisation blurring borders, thousands of Indian residents now hold retirement benefit accounts overseas. But here’s the catch—those foreign savings could be taxed in India even before you see a penny, thanks to mismatched tax timelines.
That’s where the newly introduced Section 89A of the Income Tax Act steps in. Rolled out under the Finance Act, 2021, this provision finally addresses a long-pending concern: aligning India's taxation with that of foreign jurisdictions on retirement income.
If you’re working abroad—or have worked abroad—& hold funds in a foreign retirement plan, Section 89A could be the tax relief you didn’t know you needed.
What is Section 89A of the Income Tax Act?
Section 89A was specifically introduced to provide tax relief for Indian residents with foreign retirement accounts. Until now, people had to pay tax in India on an accrual basis, even though the foreign country only taxed them at withdrawal.
This led to double taxation—tax once when the income accrued in India, & again when it was withdrawn abroad."
To address this, Section 89A of the Income Tax Act 1961 was added. It offers relief to residents with foreign retirement benefits accounts, particularly those maintained in notified countries such as the USA, UK, Canada, & a few others.
How Does Section 89A Work?
The section provides an option for a resident individual to defer the payment of tax on income earned from foreign retirement accounts until the actual year of withdrawal, aligning Indian taxation with foreign tax laws.
But there’s a catch: to avail this benefit, you must file a declaration with the income tax department in the prescribed manner & within the prescribed time.
Relief Under Section 89A: Who Can Benefit?
This section applies only to:
- Resident individuals (Indian citizens who have returned to India after working abroad)
- Individuals holding foreign retirement benefit accounts in notified countries.
- Those who are receiving or expecting income from such accounts in the future
For instance, if you worked in the USA & contributed to a 401(k) account, & are now back in India, Section 89A allows you to defer Indian taxation on this income until it is withdrawn from the US account.
Tax Treatment Before & After Section 89A
Before Section 89A, income from foreign retirement accounts was taxed in India on an accrual basis. This caused hardship as the individual hadn’t yet received the money.
With Section 89A, relief is available by aligning the taxation year in India with that of the foreign country, so you're taxed only when you receive the funds, not when they accrue.
This brings huge relief & removes the unfair burden of preemptive taxation."
Filing Process & Form for Section 89A
To avail the benefit, a declaration must be submitted using the Section 89A form, available on the Income Tax e-filing portal.
Make sure to:
- Provide details of the foreign retirement account
- Mention the country & account type
- Select the year of withdrawal
- Submit it before filing your ITR
Also, keep track of updates for section 89a othe f the Income Tax Act for AY 2022–23 & AY 2023–24, as the rules may change each financial year.
Common Searches: What People Are Asking
Some popular queries related to this section include:
- "Deduction under section 89a of the Income Tax Act" – Yes, relief is provided, but not as a traditional deduction. It’s a deferral of tax liability, not an exemption or deduction.
- "Relief under section 89a of the Income Tax Act" – It allows aligning taxability with the year of actual receipt.
- "Income tax rate under section 89a" – Regular slab rates apply in the year of withdrawal.
The income tax rebate under section 89a should not be confused with the standard Section 87A rebate. This section specifically targets foreign retirement income."
Final Thoughts
With global careers becoming common, Section 89A of the Income Tax Act is a timely & much-needed reform. It ensures that Indian residents are not penalised for having retirement savings overseas. Knowing your rights & options can help you save a lot on taxes—legally & smartly.
🌍 Confused about your foreign retirement income taxability in India?
💼 Connect with verified experts on Callmyca.com — & let us help you unlock your global earnings without tax confusion!
