Section 89A: Tax Relief on Foreign Retirement Funds

Relocating back to India after a long career abroad is an exciting transition, but it often brings a complex tax headache: what happens to your foreign retirement savings? For years, returning residents faced a tax mismatch where India taxed foreign pension earnings as they grew (accrual basis), while the foreign country only taxed them upon withdrawal. This often led to double taxation. Section 89A was introduced to solve this exact problem. By allowing you to defer Indian tax until you actually withdraw the money, this section ensures your retirement nest egg is protected and your tax liability aligns with the rules of the country where you worked.

What is Section 89A? (The Expat’s Safety Net)

In simple terms, Section 89A is a relief provision for Specified Persons who have Specified Accounts in notified countries.

Before this section existed, if you had a 401(k) in the USA or an RRSP in Canada, the interest or dividends earned inside those accounts were taxable in India every year once you became a resident. However, the USA or Canada wouldn't tax you until you retired and took the money out. This meant you couldn't easily claim a Foreign Tax Credit because the timing of the tax didn't match. Section 89A allows you to postpone paying tax in India until the year you actually withdraw the funds.

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Who is eligible? (Specified Person)

To claim relief under Section 89A for the 2025-26 period, you must meet three main criteria:

1. Residential Status: You must be a resident of India in the year you are claiming the relief.

2. Account History: You must have opened the retirement account while you were a Non-Resident (NRI) in India and a resident in that foreign country.

3. Notified Countries: As of 2025, the relief is available for accounts maintained in:

   1. The United States of America (USA)
   2. The United Kingdom (UK)
   3. Canada
   4. Australia (Newer notifications may apply; always check the latest list).

Which accounts qualify? (Specified Accounts)

Not every foreign bank account is eligible. This relief is strictly for Retirement Benefits Accounts.

Country

Examples of Qualifying Accounts

USA

401(k) Plans, Individual Retirement Accounts (IRA).

Canada

Registered Retirement Savings Plans (RRSP).

UK

Self-Invested Personal Pensions (SIPP), Employer Pension Schemes.

Note: Regular savings accounts, brokerage accounts, or fixed deposits do not qualify for Section 89A relief.

How the tax deferral works (Accrual vs. Withdrawal)

The magic of Section 89A is how it changes the timing of your tax bill.

Year

Without Section 89A (Accrual Basis)

With Section 89A (Withdrawal Basis)

Years 1–10 (Money stays in account)

You pay tax in India every year on the interest/gains.

ZERO Tax in India. No reporting of income.

Year 11 (You withdraw the money)

You pay tax in the foreign country. No relief for old India taxes.

You pay tax in the foreign country AND India. You can now use the foreign tax as a credit to lower your India tax.

The Golden Rule: Form 10-EE

To opt into this relief, you must follow Rule 21AAA. The most important step is filing Form 10-EE.

• When to File: You must file Form 10-EE electronically on the income tax portal before you file your Income Tax Return (ITR).
• Irrevocable Choice: Once you choose to use Section 89A for an account, you cannot withdraw this choice in future years. It applies until the account is closed or fully withdrawn.
• Consequence of Status Change: If you become an NRI again after opting for this, the law undoes the relief. The income will be treated as if it was taxable on an accrual basis for all those years.

Filing Process for 2025-26

1. Login: Go to the Income Tax e-Filing portal.
2. File Form 10-EE: Go to e-File > Income Tax Forms > File Income Tax Forms and select Form 10-EE.
3. Provide Details: Enter the account details, the country, and the income accrued.
4. ITR Reporting: When filing your ITR (usually ITR-2 or ITR-3), mention the income in the Salary or Other Sources schedule and then claim the relief under the specific Section 89A column to zero out the current year's liability.

Conclusion

Section 89A is a vital tool for any NRI returning to India from the US, UK, or Canada. For the 2025-26 fiscal year, it remains the best way to avoid the trap of double taxation on your global retirement savings. By simply filing Form 10-EE, you can ensure that you only pay tax when you actually have the cash in hand. It aligns the Indian tax system with global standards and provides much-needed peace of mind for retirees. Just remember: it’s a one-way street once you opt-in, you stay in until the funds are home.