Many Indians who have worked abroad return home with retirement savings such as a US 401(k), a UK pension or a Canadian RRSP. Until recently, Indian law taxed the yearly growth of these accounts even though the foreign country taxed the money only when it is withdrawn. Section 89A fixes that timing mismatch.
Section 89A allows a returning Indian resident to defer Indian tax on the yearly growth of a foreign retirement benefit account until the year the income is actually taxed in the foreign country. The relief is a deferral, not an exemption — the tax is still paid later, when the money is withdrawn.
What is Section 89A of the Income Tax Act?
Section 89A was inserted by the Finance Act 2021 and applies from Assessment Year 2022-23. It gives a tax deferral to a “specified person” on the income that accrues in a “specified foreign retirement benefit account” kept in a notified country.
The deferral is available only if the person files Form 10-EE (or the later Form 40) before the due date of the income-tax return. Without the form, the relief does not apply, and the accrued income is taxed in India year by year.
From Tax Year 2026-27 (income from 1 April 2026), the Income-tax Act, 2025 is in force. Section 89A becomes Section 158 of the 2025 Act, Rule 21AAA becomes Rule 74 of the Income-tax Rules, 2026, and Form 10-EE becomes Form 40. For income of FY 2025-26 (AY 2026-27) the 1961 Act and Form 10-EE still apply.
Why was Section 89A needed?
India taxes residents on their worldwide income every year, on an accrual basis. The United States, United Kingdom and Canada tax retirement accounts only when money is withdrawn. That gap created a real problem for people who returned to India after working abroad.
Example: Raj returned to India in April 2024. While working in the US he built a 401(k) that grew by Rs 2 lakh in FY 2024-25. He did not take any money out.
Without Section 89A: Indian law would tax the Rs 2 lakh this year even though Raj has not received any cash. He would also pay US tax on the same growth when he finally withdraws, so the same income could be taxed twice, in different years.
With Section 89A: Raj can defer Indian tax on the Rs 2 lakh until the year he actually withdraws the money and the US taxes it. The Indian tax is payable then, at his normal slab rates, and any US tax paid can be claimed as a foreign tax credit.
Who can claim relief under Section 89A?
A person must satisfy all of these conditions:
- Resident in India in the year the relief is claimed.
- Opened the retirement account while being a non-resident of India and a resident of a notified country.
- The account must be a specified foreign retirement benefit account — a retirement account in a notified country, not a general investment account.
- The person must file Form 10-EE electronically on or before the due date for filing the return.
If any of these points is missing, the relief cannot be claimed. Non-residents cannot claim it at all — the relief is only for residents.
Which countries and accounts qualify under Section 89A?
The Central Board of Direct Taxes notified the countries through Notification No. 25/2022 dated 4 April 2022. Only three countries are notified under that notification:
| Notified country | Qualifying account types | Does NOT qualify |
|---|---|---|
| United States | 401(k) plans, traditional IRA | Regular brokerage account, savings account |
| United Kingdom | Approved pension schemes (occupational pension, personal pension) | UK current account, non-pension investment funds |
| Canada | Registered Retirement Savings Plan (RRSP) | TFSA, non-registered investment account |
Newer guidance for Form 40 under the 2025 Act also lists Australia. That addition comes from the new form’s instructions rather than the original 2022 notification, so check the latest CBDT notification before relying on it.
Only retirement benefit accounts qualify. A brokerage account or a savings account in the same country does not, even if it holds the same investments.
How do you claim relief under Section 89A?
The relief is claimed through Rule 21AAA and Form 10-EE. The steps are:
- Collect the documents — account statements showing the opening date, proof that you were a resident of the notified country and a non-resident of India when the account was opened, and proof of Indian residency now.
- Log in to the Income-tax e-filing portal at incometax.gov.in.
- Select Form 10-EE — the form for relief under Section 89A.
- Fill in the details — your PAN, the name of the foreign country and the account type, the date the account was opened, and the income accrued in the year.
- Submit the form electronically before the due date of the return (the Section 139(1) due date). Form 10-EE must be filed before the return, not with it.
- Disclose the account in Schedule FA of your ITR, even though the tax is deferred. The account stays reportable as a foreign asset.
Once exercised, the option cannot be withdrawn for that year, and it applies to all subsequent years for that account. It also applies to all specified accounts you hold in notified countries — you cannot pick and choose one account and leave out another.
If you miss the deadline, the relief may be denied for that year and Indian tax on the accrued amount becomes payable on the normal accrual basis.
What changed in 2026 — Section 158, Rule 74 and Form 40?
The Income-tax Act, 2025 renamed the provisions. The relief itself did not change — only the references did:
| Earlier (1961 Act) | New (2025 Act) |
|---|---|
| Section 89A | Section 158 |
| Rule 21AAA | Rule 74 of the Income-tax Rules, 2026 |
| Form 10-EE | Form 40 |
The timing split matters:
- For income earned in FY 2025-26 (Assessment Year 2026-27), the old law (Section 89A, Rule 21AAA, Form 10-EE) still applies.
- From FY 2026-27 onwards (Tax Year 2026-27), the new law (Section 158, Rule 74, Form 40) applies.
Form 40 must be filed electronically on or before the due date for filing the return under Section 263(1)(c) of the 2025 Act. Like Form 10-EE, it is verified by digital signature or electronic verification code, and once exercised it cannot be revoked for that tax year.
What happens when you withdraw the money?
- Tax is charged in the year of withdrawal in India, at normal slab rates. The amount withdrawn — including income that accrued in earlier years — is added to your total Indian income for that year.
- Foreign tax credit — any tax already paid in the notified country on the same amount can be claimed as a credit, so the same income is not taxed twice. The credit is claimed through Form 67 under the 1961 framework, and through Form 44 under the Income-tax Rules, 2026.
- Schedule FA disclosure continues — the account must still be listed in Schedule FA of the return, and disclosures follow the calendar year rather than the Indian financial year.
- ITR form — the withdrawal is typically reported in ITR-2 (if you have no business income) or ITR-3 (if you have business or professional income).
The tax payable in India may be higher or lower than the foreign tax, depending on your slab rate and the foreign country’s tax rate. The credit prevents double taxation, but it does not guarantee a full offset — the credit is limited to the lower of the Indian tax and the foreign tax on that income.
One planning note: during the 2-3 years a returnee is Resident but Not Ordinarily Resident (RNOR), foreign income received outside India is generally not taxed in India. Section 89A becomes important once the person becomes Resident and Ordinarily Resident (ROR). Read our guide on NRI income tax, slabs and DTAA rules for how residential status changes the picture.
What happens if you leave India again?
If, after exercising the Section 89A (or Section 158) option, you become a non-resident again, the option is treated as never exercised.
All income that had been deferred — the accrued growth that was not taxed in India — becomes taxable in the previous year immediately before the year you turn non-resident. The tax must be paid by the due date of the return for that year. This rule stops the deferral being used as a permanent shelter by people who move in and out of India.
Section 89 vs Section 89A — what is the difference?
The two sections sound alike but solve different problems:
| Feature | Section 89 | Section 89A |
|---|---|---|
| Purpose | Relief for salary received in arrears or in advance, which pushes you into a higher slab in one year | Relief for income accruing in foreign retirement benefit accounts |
| Form used | Form 10E | Form 10-EE (later Form 40) |
| How it works | Spreads the arrears over the years they relate to, so the extra tax is reduced | Defers tax on the account’s growth until withdrawal |
| Who it is for | Any resident individual with salary arrears or advance | Specified person — a resident who opened the account while non-resident |
For the salary-arrears relief, see our guide on Form 10E and Section 89 relief.
Common mistakes to avoid
| Mistake | Why it matters | How to avoid it |
|---|---|---|
| Filing Form 10-EE after the return due date | Relief may be denied; tax becomes payable on accrual basis | File Form 10-EE before the return, on or before the Section 139(1) deadline |
| Treating the relief as a tax exemption | You will still owe tax when you finally withdraw | Remember it is a deferral, not a waiver |
| Forgetting to disclose the account in Schedule FA | The return can draw a notice and penalty | Always list the foreign retirement account, even if tax is deferred |
| Assuming a regular brokerage or savings account qualifies | Only specified retirement benefit accounts are covered | Check the account type against the qualifying list |
| Withdrawing from a US 401(k) before age 59.5 without checking | Early withdrawals can attract a 10% US penalty plus tax, on top of Indian tax | Plan withdrawals with a CA and check both countries’ rules first |
| Not checking for newer notifications | You may miss an eligible country or include one that is not notified | Review the latest CBDT notification before filing |
Retirement income in India has its own rules too — see our guide on pension and commuted pension taxation, and the new form numbers list if you are moving from old forms to the 2025 Act forms.
Frequently Asked Questions
What is Section 89A of the Income Tax Act?
Section 89A is a provision that lets a resident Indian defer tax on the yearly growth of a foreign retirement benefit account — such as a US 401(k), a UK pension or a Canadian RRSP — until the year the income is taxed in the foreign country. It was inserted by the Finance Act 2021 and applies from AY 2022-23. Under the Income-tax Act, 2025 it becomes Section 158.
Who is eligible for relief under Section 89A?
A person who is resident in India, who opened a qualifying foreign retirement account while being a non-resident of India and a resident of a notified country (USA, UK or Canada), and who files Form 10-EE before the return due date. All three conditions must be met.
Which countries are notified under Section 89A?
Under CBDT Notification No. 25/2022 dated 4 April 2022, the notified countries are the United States, the United Kingdom and Canada. Newer Form 40 guidance also lists Australia, so check the latest notification before relying on it.
How do I claim relief under Section 89A?
Log in to the e-filing portal at incometax.gov.in, select Form 10-EE, fill in your PAN, the country, the account type, the opening date and the accrued income, and submit it electronically before the return due date. The option then applies for that year and all future years of the same account.
Is Section 89A a tax exemption or a deferral?
It is a deferral. Tax is postponed until the year you withdraw the money and the foreign country taxes it. The amount is then taxed in India at slab rates, with a foreign tax credit for tax paid abroad.
Can I withdraw my Section 89A option once exercised?
No. Once you file Form 10-EE for a year, the option cannot be withdrawn for that year and it continues for all subsequent years of the same account. The only thing that ends it is a change in residency — if you become a non-resident again, the option is treated as never exercised and the deferred income becomes taxable.
Key facts
- CBDT Notification No. 25/2022 (4 April 2022) notified only three countries for Section 89A relief: the USA, the UK and Canada.
- Finance Act 2021 inserted Section 89A, effective from Assessment Year 2022-23 — so the relief has been available for returns filed since AY 2022-23.
- US 401(k) early withdrawal: withdrawals before age 59.5 can attract a 10% additional US tax plus income tax. This is a US rule, not an Indian one, but it affects the total cost of withdrawing early.
Official Sources
- Income Tax e-Filing Portal — incometax.gov.in (file Form 10-EE / Form 40)
- Income Tax Department — incometaxindia.gov.in (CBDT Notification No. 25/2022 and Act/Rules)
Reviewed by Asuthod Rathod, CA. Last updated: 6 November 2026.
Disclaimer: This article provides general information only. It does not constitute tax advice. Tax rules for foreign retirement accounts depend on your residential status, the DTAA with the country concerned, and the latest CBDT notifications. Please consult a qualified tax professional for advice specific to your situation.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.