Many NRIs returning to India have retirement savings in the United States, such as 401(k) accounts or Traditional IRAs. These accounts are tax-deferred in the U.S., which means you only pay tax when you withdraw.

However, once you become a Resident and Ordinarily Resident (ROR) in India, your global income becomes taxable under Indian Income Tax laws. Without careful planning, your 401(k) or IRA may be taxed in India every year on notional growth, while also being taxed in the U.S. at the time of withdrawal – leading to double taxation.

To address this, the Indian government introduced Section 89A of the Income Tax Act, 1961, along with Rule 21AAA of the Income Tax Rules. By filing Form 10EE, you can align Indian taxation with U.S. taxation and pay tax in India only when you actually withdraw the funds.

Taxation of 401(k) and IRA for NRIs in India

• 401(k) in the U.S. – Contributions grow tax-deferred, taxed at withdrawal.
• Traditional IRA – Similar to 401(k); taxable at withdrawal.
• Roth IRA – Withdrawals are generally tax-free in the U.S., but India may not treat them as tax-free.

In India (after becoming ROR) – Normally, India would tax the yearly accruals from these accounts, even if you do not withdraw.

This mismatch between U.S. and Indian taxation makes Section 89A and Form 10EE essential for returning NRIs.

Section 89A – Relief for NRIs with Retirement Accounts Abroad

Section 89A, introduced by the Finance Act, 2021, allows relief to residents of India who had opened retirement accounts abroad as NRIs.

Key benefits of Section 89A:

• Applies to specified countries (U.S., U.K., Canada are notified).
• Income from foreign retirement accounts is taxable in India only at the time of withdrawal.
• Relief available only if Form 10EE is filed in the first year of becoming ROR.

Rule 21AAA – How Section 89A Works

To implement Section 89A, the CBDT notified Rule 21AAA. It provides:

• The detailed procedure to claim relief.
• Requirement to file Form 10EE electronically.
• Alignment of Indian taxation with the rules of the foreign country (e.g., U.S. for 401(k)/IRA).

In simple terms:

• Section 89A = Right to defer taxation.
• Rule 21AAA = Procedure.
• Form 10EE = Your declaration to the Indian tax department.

Form 10EE – Aligning Taxation in India with the U.S.

• Form 10EE must be filed online on the Income Tax Portal in the first year you become ROR in India.
• Once filed, your 401(k) or IRA will be taxed in India only at withdrawal, not annually. This matches the U.S. taxation system.

Without Form 10EE – India taxes annual accruals + U.S. taxes withdrawals → double taxation risk.

With Form 10EE – India and U.S. both tax withdrawals → DTAA relief available.

Step-by-Step Tax Strategy for NRIs Returning to India with 401(k) or IRA

Determine Residential Status

• You may qualify as RNOR (Resident but Not Ordinarily Resident) initially → global income not taxed.
• Once you become ROR, your 401(k)/IRA becomes taxable in India.

File Form 10EE (under Rule 21AAA)

• Must be filed in the first year of ROR status.
• Opt for deferred taxation as per Section 89A.

Withdrawals in the U.S.

• Taxed under U.S. tax laws in the year of withdrawal.

Taxation in India

• Same withdrawal taxed in India in that year.
• File Form 67 with your ITR to claim Foreign Tax Credit (FTC) under the India-USA DTAA.

Example – NRI Returning to India with a 401(k)

Suppose you return to India in 2026 and become ROR in FY 2027-28.

• If you do not file Form 10EE → India taxes annual accruals on 401(k) from FY 2027-28 onwards.
• If you file Form 10EE under Section 89A → India taxes your 401(k) withdrawals in sync with the U.S., and you can claim FTC for taxes already paid in the U.S.

This ensures no double taxation and smooth compliance.

FAQs on 401(k)/IRA Taxation for Returning NRIs

1. What is Section 89A?
It allows returning NRIs to defer tax on foreign retirement accounts (like U.S. 401(k)/IRA) until withdrawal.

2. What is Rule 21AAA?
It explains the procedure to claim Section 89A relief, including filing Form 10EE.

3. When do I need to file Form 10EE?
It must be filed in the first year you become ROR in India.

4. Does this apply to Roth IRA?
Section 89A mainly applies to 401(k) and Traditional IRA (withdrawals taxed). Roth IRA withdrawals may still be taxable in India.

5. Can I claim DTAA benefits?
Yes. Under the India-USA DTAA, you can claim Foreign Tax Credit for U.S. taxes paid on withdrawals.

Key Takeaways

• NRIs returning to India with 401(k) or IRA must carefully plan taxation.
• Section 89A + Rule 21AAA + Form 10EE prevent annual accrual taxation and align India with U.S. rules.
• Always file Form 10EE in your first ROR year.
• Use Form 67 to claim Foreign Tax Credit under the India-USA DTAA.
• Professional planning is essential to avoid double taxation and optimize withdrawals.

Final Thoughts

At Dinesh Aarjav & Associates, we specialize in NRI tax planning and cross-border advisory. If you are an NRI returning to India with a 401(k), IRA, or other foreign retirement accounts, our team can help you:

• File Form 10EE under Section 89A.
• Structure withdrawals efficiently.
• Claim Foreign Tax Credit under the DTAA India USA.
• Ensure smooth compliance with both U.S. and Indian tax laws.

Book a consultation with us today and secure your retirement savings with the right tax strategy.