Planning to return to India from the US, UK, or Canada while holding a 401(k), IRA, RRSP, or foreign retirement account? The Income Tax Act, 2025 has introduced an important structural change to how tax relief for foreign retirement accounts will operate in India.

If you are a returning NRI, especially from the United States, United Kingdom, Canada, or Australia, understanding these changes can potentially save you from double taxation, incorrect reporting, tax notices, and costly mistakes while withdrawing retirement savings.

Many NRIs returning to India hold substantial balances in:

• 401(k) Retirement Accounts
• Traditional IRA (Individual Retirement Account)
• Employer Pension Plans
• RRSP (Registered Retirement Savings Plan – Canada)
• UK Pension Schemes
• Superannuation Accounts (Australia)

The biggest concern?

“Will India tax my retirement account even if I have not withdrawn money?”

This is precisely where Section 89A (old law) and now Section 158 under the Income Tax Act, 2025 become critical.

What Has Changed Under the Income Tax Act 2025 for Section 89A?

Under the Income Tax Act, 1961, taxpayers relied on Section 89A to claim relief from taxation on income accrued in specified foreign retirement accounts.

However, under the new Income Tax Act, 2025, Section 89A has now been replaced by Section 158 read with Rule 74 of the Income Tax Rules, 2026.

While the objective remains largely the same, the procedural framework has changed.

The new law continues to provide tax relief on income from foreign retirement benefit accounts maintained in notified countries, helping avoid timing mismatches and double taxation between India and the foreign country.

Why Section 89A Was Introduced in the First Place?

Before Section 89A came into effect, returning NRIs often faced a major tax issue.

Countries like the US, UK, and Canada typically tax retirement accounts such as 401(k), Traditional IRA, RRSP, and pension plans at the time of withdrawal, whereas India could potentially tax annual accretions, growth, dividends, or accrued income.

This created a double taxation mismatch:

Example:

• A returning NRI moves to India and becomes a resident.
• Their 401(k) continues to grow in the US.
• India taxes annual accruals.
• Later, the US taxes withdrawals again.

Result?

Potential double taxation on the same retirement corpus.

To address this, the Government introduced Section 89A, allowing eligible taxpayers to defer Indian taxation until withdrawal, matching the foreign country’s taxation timeline.

The same relief continues under Section 158 of the Income Tax Act, 2025.

Which Countries Are Covered Under Section 158 (Earlier Section 89A)?

Currently, the following countries are notified for relief:

• United States (USA)
• United Kingdom (UK)
• Canada
• Australia

This means if you maintained a retirement account in these countries while being a tax resident there and a non-resident in India, you may be eligible for relief.

Which Retirement Accounts Are Covered?

Some of the most common foreign retirement accounts eligible for relief include:

For Returning NRIs from USA

• 401(k) Plans
• Traditional IRA (Individual Retirement Account)

For Returning NRIs from Canada

• RRSP Accounts

For Returning NRIs from UK

• Employer Pension Schemes
• Private Pension Plans

For Returning NRIs from Australia

• Superannuation Funds

The research note specifically identifies 401(k) plans and Traditional IRA accounts under the US category.

Form 10EE Is Replaced by Form 40 Under Income Tax Act 2025

One of the biggest procedural changes is the replacement of Form 10EE.

Under the old law:

Form 10EE was filed to exercise the option under Section 89A.

Under the new law:

Form 40 must now be filed to exercise the option under Section 158 of the Income Tax Act, 2025.

This change is highly important for returning NRIs with 401(k), IRA, RRSP or UK pension accounts, since failure to file the prescribed form may impact the ability to claim relief.

Who Can Claim Relief Under Section 158?

To claim relief, a taxpayer should generally satisfy the following conditions:

You must be:

• A resident in India
• A person who opened the retirement account while being resident outside India and non-resident in India
• The retirement account should be maintained in a notified country
• You should have maintained the account while residing in that foreign country.

Important Change: Once Opted, It Cannot Be Withdrawn

A crucial point often missed by returning NRIs:

Once the option is exercised for a tax year, it cannot be withdrawn for that year or subsequent years.

This makes retirement withdrawal planning extremely important.

For example:

A wrong election timing may impact:

• 401(k) withdrawal taxes
• Traditional IRA taxation in India
• RNOR tax benefits
• Double taxation relief
• Future withdrawal planning

This is why strategic advisory becomes critical before filing.

What Documents Are Required to File Form 40?

Returning NRIs may need substantial documentation, including:

1. Foreign Retirement Account Details

• Account number
• Date of opening
• Year-end account balance

2. Retirement Account Statements

Supporting evidence showing account details and balances.

3. Foreign Taxability Proof

Documents explaining how the retirement income is taxed or taxable abroad.

4. Prior Tax Computation

Income computations for years where foreign retirement income was already taxed in India.

5. Reconciliation Statements

Reconciliation with prior Indian income tax returns.

How Should Returning NRIs Report 401(k), IRA & Foreign Retirement Accounts in India?

Merely filing Form 40 may not be sufficient.

Depending on your facts, disclosures may also arise under:

Schedule FA (Foreign Assets)

Disclosure of:

• Foreign retirement account
• Peak balance
• Closing balance

Schedule FSI (Foreign Source Income)

Reporting foreign income earned.

Schedule Salary / Other Sources

Depending upon whether pension or investment income is involved.

Incorrect disclosure can lead to:

• Income tax notices
• FEMA concerns
• Black Money Act exposure
• Double taxation issues

Biggest Mistake Returning NRIs Make with 401(k) & IRA Withdrawals

One of the biggest mistakes we see:

Withdrawing retirement funds without planning RNOR vs ROR status

This can significantly alter taxation.

Questions returning NRIs should evaluate:

• Should you withdraw 401(k) during RNOR?
• Should you delay Traditional IRA withdrawals?
• Should you stagger withdrawals?
• Should you explore Roth conversion timing?
• How does DTAA India USA impact retirement taxation?
• Will India tax employer contributions?
• What happens if withdrawals happen after becoming ROR?

These questions require case-specific tax modelling.

There is no one-size-fits-all answer.

Section 89A to Section 158: What Returning NRIs Should Do Now

If you are returning to India from the US, UK, Canada, or Australia, consider the following action points:

Step 1: Review Your Retirement Accounts

Identify:

• 401(k)
• IRA
• RRSP
• UK Pension
• Employer retirement plans

Step 2: Evaluate RNOR Status

Your RNOR window may create planning opportunities.

Step 3: Assess Withdrawal Timing

Timing could materially impact taxes.

Step 4: File Form 40 Properly

Avoid procedural mistakes.

Step 5: Ensure Correct ITR Reporting

Schedule FA and foreign income reporting should align.

Frequently Asked Questions (FAQs)

Q.1 Is Section 89A abolished in Income Tax Act 2025?

Ans: Section 89A under the Income Tax Act, 1961 has effectively transitioned to Section 158 under the new Income Tax Act, 2025, along with procedural changes including replacement of Form 10EE with Form 40.

Q.2 Is Form 10EE still applicable?

Ans: No. Under the new framework, Form 40 replaces Form 10EE for exercising the option.

Q.3 Is 401(k) taxable in India?

Ans: It depends on multiple factors including:

• RNOR vs ROR status
• DTAA implications
• Timing of withdrawal
• Section 158 election
• Nature of income

Q.4 Can India tax my IRA if I have not withdrawn funds?

Ans: Potential timing mismatch issues may arise without proper relief planning under Section 158.

Q.5 Can returning NRIs avoid double taxation on retirement accounts?

Ans: Proper NRI tax planning may help align taxation timing between India and the foreign country.

Need Help with 401(k), IRA, RRSP or UK Pension Taxation in India?

At Dinesh Aarjav & Associates, we advise NRI returning to india from the US, UK, Canada and Australia on:

• 401(k) withdrawal planning in India
• Traditional IRA taxation
• RNOR tax planning
• Section 158 / Form 40 advisory
• India-US DTAA retirement planning
• Foreign pension taxation
• Double taxation mitigation strategies
• NRI return-to-India tax planning

With 25+ years of experience advising global NRIs, our team helps clients navigate the complex intersection of Indian tax law, DTAA, FEMA, and foreign retirement account taxation.

Also Read:

Is a 529 Plan Worth It for NRIs Moving Back to India? Here's the Reality.

Pre-Immigration Tax Planning Before Moving to USA – Key Financial Checklist for NRIs

Tax Clearance Certificates for Indians Moving Abroad: What You Need to Know

RSU Taxation in the UK for NRIs: Complete Guide to Filing, Double Taxation Relief & Deadlines