Budget 2021 offers relief to the non-residents Indians from the double taxation on money accrued on foreign retirement accounts as tax on such money has been deducted in India. There is a mismatch in the year of taxability of such funds in India and the respective foreign country as of now.
During the budget speech, Finance Minister Nirmala Sitharaman mentioned that when NRIs fly down to the country, they usually face issues with their accrued corpus in foreign retirement accounts due to the mismatch in the timing in India and the foreign country of such income. They may also face difficulties in getting credit for Indian taxes in foreign jurisdictions.
“At present, the withdrawal from such funds may be taxed on receipt basis in such foreign countries, while on an accrual basis India. To address this mismatch and remove this genuine hardship, it is proposed to insert a new Section 89A to the Act to provide that the income of a specified person from a specified account shall be taxed in the manner and the year as prescribed by the Central Government,” said the budget document.
“NRIs who returned to India after spending significant time abroad on a job faced difficulties with receiving money from retirement accounts. In some countries, retirement benefits may be taxed on withdrawals or on receipt, whereas in India it may be taxed on accruals. This caused a great deal of frustration among NRIs who chose to become Indian residents and reported retiral receipts in Indian tax returns. Claiming the double tax avoidance agreement (DTAA) benefits also became challenging in such a scenario,” stated Archit Gupta Founder and Chief Executive Officer, ClearTax, income tax return filing portal.
“To provide them relief, the government will be specifying certain retiral accounts and notifying countries where this discrepancy will be reduced to prevent hardships to returning NRIs who receive money from their retiral accounts,” he further added.
Partner and head, global mobility services – tax, KPMG India, Parizad Sirwalla said, “This amendment appears to provide some relief to individuals qualifying as a resident and ordinary resident, especially returning to India either due to the ongoing pandemic or any other reason.”
The Government will notify the rules of the same soon. The budget says 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.