Section 89A

[DILIPDE]

Section 89A of the Income Tax Act in India exempts income from foreign retirement accounts from taxation on an accrual basis12. This means that the tax liability shifts to the foreign country, which will tax the income only at the time of withdrawal2. This change is effective from the assessment year 2022-231.

[1] Quick question: Rollover IRA (from 40IK) comes under 89A as per as I under 89A. When I withdraw from this account, the US will consider it as an ordinary income and tax as per your slab rate. Is India going to tax all gains as per slab rate or tax as per the type of income such as long term capital gain ( 12.5% as per 2025 tax law) and short term capital gain, dividend are tax as per slab rate.

I am asking this question because if long term capital gain is taxed at 12.5% in India, then keeping more money in stock in Rollover IRA in will help to lower tax in India.

[2] Roth IRA is not recognized by 89A?

[post_r2i06]

89A - you are not tax-exempt from India but it's just postponed to withdrawal time. e.g. if your IRA has dividend of $1000 in year 24-25, tax on $1000 is due now. But with 89A- you can say, I will pay at the time of withdrawal and at the time of withdrawal, add this $1000 and calculate. Also, if let's say, you relocate to US (before your withdrawal), you have to pay tax on $1000 that you deferred in 24-25, in the year you relocate.

It's extremely complex. Indian govt will not give any tax relief to a rich (GoI considers OCI/NRIs etc as super rich) guy.

[nodegree]

Another catch is, if you opt for that taxation - as soon as you've become a Non-Resident you become liable to all the taxes accrued during your residency. This only makes sense if you decide to permanently relocate to India.