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Budget 2021 proposes to provide relief from double taxation for non-resident Indians (NRIs) on money accrued in foreign retirement accounts by claiming relief on tax deducted on such money in India. Currently, there is a mismatch in the year of taxability of such funds in India and the respective foreign country.

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Finance minister Nirmala Sitharaman mentioned in the budget speech that when NRIs return to India, they generally face issues concerning their accrued corpus in foreign retirement accounts. This is usually due to a mismatch in the timing of taxation of such income in the foreign country and India. 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 in 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.

This problem is usually faced by NRIs who choose to settle in India after retirement. “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 withdrawal 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," said Archit Gupta, founder and chief executive officer, ClearTax, income tax return filing portal.

The government will soon notify rules regarding the taxability of such withdrawal or redemption proceeds from NRIs’ foreign retirement accounts. “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," said Gupta.

According to Parizad Sirwalla, partner and head, global mobility services - tax, KPMG India, “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," said Sirwalla.

The budget proposes 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

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