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CA Final · Direct Tax Laws & International Taxation · Non Resident Taxation

Mr. Raman Iyer, a person resident in India, opened a retirement benefit account in a country notified by the Central Government while he was non-resident in India and resident in that country. The country taxes income from the account only at the time of withdrawal or redemption and not on accrual. Under section 158 of the Income-tax Act, 2025, how is the income accruing in this account treated?

The income is taxed in the manner and tax year prescribed under section 158(1). Raman is a specified person holding a specified account in a notified country, so the Act relieves him from ordinary accrual taxation and defers to the prescribed rules rather than taxing it annually or exempting it.

  1. AIt is taxed in the manner and tax year as may be prescribed, because the account is a specified account and he is a specified personCorrect
  2. BIt is taxed every year on accrual basis at the maximum marginal rate
  3. CIt is wholly exempt and never taxed in India
  4. DIt is taxed only if he again becomes non-resident in India

Explanation

Section 158(1) provides that income accrued to a specified person in a specified account is taxed in such manner and tax year as may be prescribed. Raman fits the definition of specified person (resident in India who opened the account while non-resident in India and resident in the notified country). The account is taxed at withdrawal abroad, not on accrual. Taxing it annually on accrual at a fixed rate has no basis in the section.

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