Direct Tax Laws & International Taxation · Non Resident Taxation

Relief on Retirement Benefit Accounts in Notified Countries (Section 158)

Updated 5 October 2026 · Fact-checked

Section 158 gives relief to a resident who holds a retirement benefit account in a notified country. Foreign pension income is often taxed there only on withdrawal, but India would tax it as it accrues. The section lets the Central Government prescribe the manner and tax year of taxation, so a resident can avoid tax in India on income not yet taxed abroad.

Understand Relief on Retirement Benefit Accounts in Notified Countries (Sec 158)

A person who worked abroad, for example in the USA, the UK or Canada, often builds up a retirement account there. Tax on that account is usually deferred. The income is taxed in that country only when you withdraw it. Contributions and growth are not taxed year by year.

Now suppose the person returns to India and becomes a resident. A resident is taxed in India on global income. If the account income is taxed on accrual in India but on withdrawal abroad, there is a mismatch in timing. You could pay tax in India on income you cannot touch, and no foreign tax credit would be available that year because no foreign tax has been paid yet.

Section 158 removes this mismatch. It applies where a resident has income accrued in a retirement benefit account maintained in a notified country. The Central Government notifies the countries. The section says the income is taxed in the manner and the tax year prescribed by the Government. In practice, the prescribed scheme defers Indian tax to the tax year of withdrawal or redemption. It also avoids taxing the same income twice.

The relief is conditional. The account must be a retirement benefit account of the kind the rules recognise. The country must be notified. The person must be a resident. The person must also meet the procedural conditions of the rules, such as furnishing the prescribed form and details. If any of these fails, the normal rules apply and the income is taxed on the usual basis.

Think of Section 158 as a timing and mechanism provision, not a general exemption. The income is still taxed in India. What changes is when it is taxed and how double taxation is avoided.

Key rules to remember

Core rule of Section 158: Resident + retirement benefit account + notified country → income taxed in the manner and tax year prescribed; All three elements must be present. Quote the elements in your answer before concluding.
Timing under the prescribed scheme: Tax year of taxation = tax year of withdrawal or redemption (not the year of accrual); This is the practical effect of the relief. Check the Income-tax Rules, 2026 in your study material for the exact wording.
Amount taxed on withdrawal: Taxable income = accrued income element of the withdrawal (not the capital contributed); Return of your own contributions is not income. Only the accrued income is brought to tax.
No double taxation: Income taxed once in India; foreign tax on the same income eligible for relief under Sec 159 or the DTAA; Income already taxed in India in an earlier year is not taxed again on withdrawal.
Conditions checklist: Resident status + notified country + eligible account + prescribed form and information; Missing any one condition means the relief is not available.

How to solve Relief on Retirement Benefit Accounts in Notified Countries (Sec 158) questions

Use this sequence for any question on foreign retirement accounts held by a resident.

1Fix the residential status of the person for the tax year. Section 158 is for a resident.
2Identify the account. Check that it is a retirement benefit account of the kind recognised by the rules, not an ordinary savings or investment account.
3Check the country. It must be one notified by the Central Government. If it is not notified, apply the normal rules and stop.
4State the relief in one line: income is taxed in the manner and tax year prescribed, which is the year of withdrawal or redemption.
5Separate the withdrawal into your own contributions and accrued income. Only accrued income is taxable.
6Check whether any of that income was already taxed in India in an earlier year. Exclude it to avoid double taxation.
7Apply foreign tax credit for tax paid abroad on the same income, under Section 159 or the DTAA, whichever applies and is beneficial.
8Confirm the procedural condition: the prescribed form and information must be furnished. Then write the conclusion.

Quickest way: Three-gate check

When to use it: Use for MCQs and for the first two lines of a descriptive answer.

Gate 1: Is the person a resident? If not, the section does not apply.
Gate 2: Is the account a retirement benefit account in a notified country? If not, normal taxation applies.
Gate 3: If both gates pass, tax the accrued income in the year of withdrawal. Give credit for foreign tax and do not tax any amount twice.

Common mistakes in Relief on Retirement Benefit Accounts in Notified Countries (Sec 158)

Treating Section 158 as a full exemption for foreign pension income.
The word 'relief' is read as 'exempt'.
Fix: Write that the income remains taxable in India. Only the manner and the tax year of taxation are prescribed, usually the year of withdrawal.
Applying the section to any foreign country.
Students forget the notified-country condition.
Fix: Always check whether the country is notified. If the facts name a country that is not notified, deny the relief.
Taxing the whole withdrawal amount.
Students do not separate contributions from income.
Fix: Tax only the accrued income element. Your own contributions returned are not income.
Taxing the income again on withdrawal when it was already taxed in India earlier.
Students apply the withdrawal rule mechanically.
Fix: Exclude any income already offered to tax in an earlier tax year.
Ignoring foreign tax credit on the withdrawal.
The deferral idea takes all the attention.
Fix: On withdrawal, foreign tax may be paid on the same income. Claim credit under Section 159 or the DTAA, subject to the documents required.
Applying the relief to a non-resident.
The word 'non-resident' sits in the chapter title.
Fix: The relief is for a person who is a resident in India. A non-resident is taxed only on Indian-source income, so the issue does not arise.

Worked examples

Example 1

Meera worked in the USA for many years and held a retirement benefit account there. She returned to India and is a resident in the tax year 2026-27. Assume the USA is a notified country and the account is a retirement benefit account recognised by the rules. The account has accrued income of ₹6,00,000 that has not yet been withdrawn. How is this income treated in India for the tax year 2026-27?

Show the solution

Meera is a resident, so the first condition is met.
The account is a recognised retirement benefit account in a notified country, so Section 158 applies.
Under the prescribed manner, the income is taxed in the tax year of withdrawal or redemption, not as it accrues.
Nothing has been withdrawn in 2026-27, so the accrued income of ₹6,00,000 is not taxed in India for that year.
She must still meet the procedural conditions, namely the prescribed form and information, to claim the relief.

Answer: The accrued income of ₹6,00,000 is not taxed in India for the tax year 2026-27. It becomes taxable in the tax year in which it is withdrawn or redeemed, subject to the prescribed conditions.

Example 2

Continuing from the previous facts, Meera withdraws the entire account in a later tax year while still a resident. The withdrawal is ₹20,00,000. Of this, ₹14,00,000 is her own contributions and ₹6,00,000 is accrued income. She paid foreign tax of ₹1,20,000 on the income element. How should the withdrawal be treated in India?

Show the solution

The withdrawal is split into contributions and income: ₹20,00,000 = ₹14,00,000 + ₹6,00,000.
Return of her own contributions of ₹14,00,000 is not income and is not taxed.
The accrued income of ₹6,00,000 is taxable in India in the tax year of withdrawal, as per the prescribed scheme.
None of it was taxed in India earlier, so no part is excluded.
The foreign tax of ₹1,20,000 was paid on the same income. She can claim credit under Section 159 or the DTAA, limited to the lower of the foreign tax and the Indian tax on that income, and subject to the documents required.

Answer: ₹6,00,000 is included in her income in the tax year of withdrawal. The ₹14,00,000 of contributions is not taxed. Credit for the foreign tax of ₹1,20,000 is allowed within the usual limit.

Exam tips

Begin every answer with the three elements: resident, retirement benefit account, notified country. These earn the first marks.
Always state the year of taxation, which is withdrawal or redemption. Examiners look for this phrase.
In a case scenario, check the facts for traps such as a non-notified country, a non-resident person or an ordinary savings account.
Link the section to foreign tax credit. Questions often combine this topic with Section 159 or a DTAA.
If the question gives no amount, answer in words. If it gives amounts, split contributions from income before you tax anything.

Practice questions from Non Resident Taxation

Relief on Retirement Benefit Accounts in Notified Countries (Sec 158): frequently asked questions

What does Section 158 of the Income-tax Act, 2025 deal with?

It gives relief to a resident who has income in a retirement benefit account maintained in a notified country. The income is taxed in the manner and tax year prescribed by the Central Government. This removes the timing mismatch between Indian and foreign tax.

Is foreign pension income exempt in India under this section?

No. The income stays taxable in India. The relief only changes when and how it is taxed, which is generally at the time of withdrawal or redemption, and prevents double taxation.

Which countries are covered?

Only those notified by the Central Government. Check the current notification in your study material. If a country is not notified, the section does not apply and normal rules govern the income.

Does a non-resident get this relief?

No. The section is for a resident. A non-resident is taxed in India only on income received or deemed to accrue in India, so a foreign retirement account is normally not an issue for them.

Can I claim foreign tax credit on the withdrawal?

Yes, where foreign tax has been paid on the same income. Credit is available under Section 159 or the applicable DTAA, subject to the limits and the documents required by the rules.