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TMI BlogAddressing Cross-Border Taxation of Foreign Retirement Benefits : Clause 158 of Income Tax Bill, 2025 Vs. Section 89A of Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... iduals who have returned to India after a period of residence abroad. The evolution of these provisions reflects the growing mobility of Indian professionals and the government's attempt to harmonize domestic tax treatment with international practices, thereby preventing double taxation and providing relief in genuine hardship cases. The significance of these provisions is heightened by the proliferation of cross-border employment and the increased incidence of Indian residents holding retirement accounts in countries following a "taxation on withdrawal" regime, notably the United States, United Kingdom of Great Britain and Northern Ireland and Canada. The legal framework aims to address the mismatch arising when such income is taxed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons from non-resident Indians (NRIs) and returning Indians. The provision sought to align the Indian tax regime with international practice and remove the hardship of double taxation. Clause 158 of the Income Tax Bill, 2025, appears to continue this policy, possibly with refinements or clarifications intended to ensure clarity, consistency, and effective administration. The policy considerations include: - Preventing double taxation and timing mismatches. - Facilitating ease of compliance for returning Indians. - Ensuring that relief is targeted and does not create opportunities for tax avoidance. - Aligning with international best practices and treaties. Detailed Analysis of Clause 158 of the Income Tax Bill, 2025 Key Provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those who genuinely acquired the retirement account while abroad, not to those who open such accounts after becoming residents in India. 3. Taxation in Prescribed Year and Manner Clause 158(1) leaves the actual timing and manner of taxation to be "prescribed." This is a significant feature, as it delegates the operational details to subordinate legislation, allowing flexibility to adapt to changes in international practice and administrative exigencies. The likely intent is to tax the income in the year in which it becomes taxable in the foreign country (i.e., upon withdrawal), thereby aligning the Indian tax event with the foreign tax event and preventing double taxation or cash flow mismatches. 4. Administrative and Compliance Aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits is mitigated. Regulatory and Administrative Impact The provision imposes a compliance burden on both taxpayers and the tax authorities: - Taxpayers must maintain detailed records and comply with reporting requirements. - The tax authorities must verify eligibility, monitor withdrawals, and prevent abuse. - The notification of countries and accounts requires ongoing review and updating. Comparative Analysis: Clause 158 of the Income Tax Bill, 2025, Vs. Section 89A of the Income Tax Act, 1961 1. Structural and Substantive Parity A comparison of Clause 158 and Section 89A reveals near-identical language and intent. Both provisions: - Apply to income accrued in a specified account maintained in a notified country by a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89A. - Potential for Expansion: The new Bill may envisage expansion to cover additional types of accounts or countries, depending on subsequent notifications. 4. Interaction with DTAAs and Other Provisions Both provisions must be interpreted in harmony with India's network of DTAAs. Relief under Clause 158 or Section 89A should not defeat the intent of treaty provisions, nor should it result in double non-taxation. The government's power to notify countries allows it to manage this interaction and prevent abuse. 5. Potential Gaps and Areas for Clarification - Scope of "Retirement Benefits": Neither provision defines "retirement benefits" in detail, potentially leading to disputes over eligibility of certain accounts (e.g., e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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