While presenting the Union Budget 2021-22, Finance Minister Nirmala Sitharaman has proposed the abolition of double taxation on income accrued by NRIs in their foreign retirement accounts outside India. It will provide big relief to Non-Resident Indians (NRIs) who are facing hardship of double taxation.
“When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. I propose to notify rules for removing their hardship of double taxation,” said the Finance Minister. She also made reference to the difficulties faced by NRIs in getting credit in foreign jurisdiction for taxes paid in India, resulting in double taxation.
According to the memorandum of provisions of Union Finance Bill, 2021, a mismatch was observed in the year of taxability on withdrawn funds from the retirement accounts that were opened by individuals while living in foreign countries. Currently, the withdrawal from foreign retirement accounts may be taxed on receipt basis in other countries and on an accrual basis in India.
The government has introduced a new section 89A to the Income Tax Act, 1961, to address the mismatch in the taxation of income from the notified foreign retirement funds. After the change in the income tax act, the income of the “specified person” from the “specified account” shall be taxable in the year and in the way as directed by the Central Government.
“Specified Person” will refer to the individual who is residing in India but opened the “Specified Account” while residing in the foreign country. The Union Finance Ministry has proposed to define “Specified Account” as an account held by NRIs in a foreign country for retirement fund benefits. The income earned from such accounts is not taxable on an accrual basis and is taxed by that nation at the time of withdrawal or redemption. The proposed changes will be effective from 1st April 2022 and shall be accordingly applicable to the assessment year 2022 – 23 and the subsequent years.
During her budget speech, the Finance Minister added that Non-Resident Indians will also be allowed to operate one person companies or OPCs in India.