Income Tax Return filing: New ITR forms need income disclosure from foreign accounts

The new ITR forms, however, have introduced a change whereby the term accounting period has been replaced with a calendar year ending on December 31, 2021.

Income Tax Return filing: New ITR forms need income disclosure from foreign accounts

The Central Board of Direct Taxes (CBDT) had notified new income tax return (ITR) forms for the financial year (FY) 2021-22 (assessment year (AY) 2022-23) on 1st April 2022. This mandates additional information regarding overseas retirement accounts to be provided.

In all ITR forms, new rows have been included where individuals need to furnish details of income accrued on foreign retirement accounts, and any such income, which has been claimed for tax relief under Section 89A of the Income-tax Act, 1961.

As per earlier ITR forms, a non-resident was required to report foreign assets and liabilities only if it was held outside India at any time during the relevant accounting period under Schedule FA (Foreign Assets) of the income tax return (ITR). The accounting period remained undefined, though.

The new ITR forms, however, have introduced a change whereby the term accounting period has been replaced with a calendar year ending on December 31, 2021. For example, an assessee is required to furnish details of all foreign assets held between April 1, 2021, and December 31, 2021, in the case of ITR to be filed for AY 2022-23.

There are also details to be provided on whether or not the said foreign retirement benefits account was held in a notified country under Section 89A of the Income Tax Act, 1961. An assessee can also claim tax relief under Section 89A on this particular income. 

The Finance Act, 2021, introduced a new Section 89A in the Income Tax Act. This came into effect on April 1, 2022. The thought behind introducing this was to address the mismatch in taxation of Indian residents’ income earned from a foreign retirement fund in a notified country. A few countries tax withdrawals from such funds on a receipt basis, while income is taxed on an accrual basis in India. Due to the difference in the taxation periods, the NRI taxpayers faced difficulties in claiming the credit of taxes paid in the foreign jurisdictions. Now, under Section 89A, the individual is given the option to tax the income from the retirement benefit accounts held in notified foreign nations, in the year when the foreign nation will subject the income of the individual to taxation at the time of withdrawal or redemption.

Section 89A applies to Indian residents who earn income from foreign retirement benefits account maintained in a notified country. It looks forward to avoid double taxation in conditions where income gained from the overseas retirement benefit account would be taxable in the notified country at the time of withdrawal or redemption, while in India it would be taxed on an accrual basis.

It needs to be noted that the notified countries for Section 89A of the ITA include the US, the UK, Canada, and Northern Ireland, as per the Central Board of Direct Taxes (CBDT).

Further, the CBDT has also notified Rule 21AAA and Form 10-EE for non-resident Indians (NRIs) to claim the relief under Section 89A related to the income from foreign retirement benefit accounts.

(The author is Founder and CEO, Clear)

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