Rule 74 — Taxation of income from retirement benefit account maintained in a notified country. Made under s.158 of the Income-tax Act, 2025.
Rule 74 gives effect to Section 158 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule lets a specified person defer Indian tax on income accruing in a retirement benefit account maintained in a notified country until that income is taxed there, and sets out how the option is exercised and what happens if it lapses.
Sub-rule (1) is the option itself: if a specified person has income accrued in a specified account or accounts during a tax year, that income shall, at his option, be included in his total income of the tax year in which income from that account or accounts is taxed upon withdrawal or redemption in the notified country.
Sub-rule (2) prevents double counting when that later year arrives. The total income of the year in which the income becomes taxable under sub-rule (1) shall not include income which has already been included in the specified person's total income in any earlier tax year during which it accrued and on which tax has been paid under the Act, or which was not taxable in India in the year of accrual because he was a non-resident or not ordinarily resident under section 6(13) during that year, or because of the application of a Double Taxation Avoidance Agreement. Foreign tax paid on such income, if any, shall be ignored for the purposes of computing foreign tax credit under rule 76.
Sub-rule (3) requires the option to be exercised in respect of all the specified accounts maintained by the person, and in Form No. 40, furnished on or before the due date specified under section 263(1)(c).
Sub-rule (4) deals with the person becoming a non-resident in a relevant tax year: the option is deemed never to have been exercised with effect from that year, and the income accrued in the specified accounts from the tax year for which the option was exercised up to the tax year immediately preceding the relevant tax year becomes taxable in that immediately preceding tax year, with tax to be paid on or before the due date of filing the return of income for the relevant tax year.
Sub-rule (5) makes the option sticky: subject to sub-rule (4), once exercised for a tax year in Form No. 40, it applies to all subsequent tax years and cannot be withdrawn for the year for which it was exercised or for any subsequent year. Sub-rule (6) takes the meanings of "notified country", "specified account" and "specified person" from section 158(2), and defines "relevant tax year" as the tax year in which the specified person becomes non-resident after the year for which the option was exercised.
A foreign retirement account may credit income year by year while the country where it is held taxes nothing until withdrawal or redemption. Taxing the accrual in India and the withdrawal abroad in different years leaves the person with income taxed here and credit available there, or the reverse. The rule settles the mismatch by letting the accrual wait for the foreign taxing event, and then blocks the obvious leakages: income already taxed in India, or never taxable here, is kept out of the later year, and the option cannot be turned on and off or applied to some accounts and not others.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Time to furnish the option in Form No. 40 | On or before the due date specified under section 263(1)(c) | The option must cover all the specified accounts maintained by the specified person | Sub-rule (3) |
| Year in which the deferred income becomes taxable if the person becomes non-resident | The tax year immediately preceding the relevant tax year | Income accrued from the tax year for which the option was exercised up to that immediately preceding year | Sub-rule (4)(b) |
| Time to pay the tax on that income | On or before the due date of filing the return of income for the relevant tax year | Relevant tax year being the tax year in which the specified person becomes non-resident | Sub-rules (4)(b) and (6)(b) |
The option defers the year of inclusion; it does not exempt anything. Sub-rule (3) makes it all-or-nothing across accounts, so a person with three specified accounts cannot opt for one and leave the others on an accrual basis, and sub-rule (5) makes it irreversible once exercised, running on into every subsequent tax year. Becoming a non-resident undoes it in an unusual way: under sub-rule (4)(a) the option is deemed never to have been exercised with effect from the relevant tax year, and the whole accumulated income is pulled back into the tax year immediately preceding that year, not into the year of departure, while the money is due only by the return due date for the relevant tax year. Sub-rule (2) is the protection against being taxed twice on the same accrual, and it carries a price: where income is left out because it was already taxed here or was never taxable here, foreign tax paid on it is ignored in computing foreign tax credit under rule 76.
A specified person holds two retirement accounts in a notified country, in which Rs 3 lakh accrues in the first year and Rs 4 lakh in the second. He furnishes Form No. 40 covering both accounts by the section 263(1)(c) due date for the first year, so neither amount enters his total income yet. In the third year he becomes non-resident, which makes that the relevant tax year: the option is treated as never exercised from that year, the Rs 7 lakh accrued in the first and second years becomes taxable in the second year, and the tax is payable on or before the due date for filing the return for the third year.
You meet it in Form No. 40, filed by the section 263(1)(c) due date, and afterwards in the return for the year in which the foreign withdrawal or redemption is taxed — and, if residence is lost, in a revised computation for the year immediately preceding that change.
such income shall, at his option, be included in his total income of the tax year in which income from the said account or accounts is taxed upon withdrawal or redemption, as the case may be, in the notified country
the option exercised under the sub-rule (1) shall be deemed to have never been exercised with effect from the relevant tax year