Form 40 Explained: Tax Deferment for Foreign Retirement Accounts

The tax relief is available to specified persons who are resident in India and maintain retirement benefit accounts in notified countries including the United States, United Kingdom, Canada, and Australia. As reported by Tax2win, eligible retirement arrangements include US 401(k) plans, IRAs, pension schemes in the United Kingdom, and eligible retirement savings plans in Canada, subject to conditions prescribed by law. The relief is available only to accounts that were opened while the individual was resident in that country and non-resident in India. According to Mint, this tax relief is specifically designed for people who have retirement savings accounts in the notified countries mentioned above, including retirement schemes such as US 401(k) plans, IRAs, pension schemes in the UK, and eligible retirement savings plans in Canada.

According to CA Abhishek Soni from Tax2win, Form 40 allows eligible taxpayers to defer taxation in India until the year in which the amount is withdrawn from the retirement account. This aligns the timing of taxation in India with the tax treatment applicable in the foreign country and addresses practical difficulties arising from different tax rules in different jurisdictions. As noted by Dhruva Advisors, the provision helps facilitate foreign tax credit mechanisms where applicable, as countries like the US, UK, and Canada generally tax income from retirement accounts only when money is withdrawn, while India may otherwise tax such income as it accrues. Form 40 does not provide a tax exemption but merely postpones the Indian tax liability to a later point, as explained by Gaurav Makhijani, Managing Partner at MGA. When funds are eventually withdrawn, the amount may be taxable in India, subject to applicable provisions and treaty benefits, and the foreign country may also levy tax on the withdrawal.

The benefit is not available automatically and requires mandatory filing of Form 40 electronically on or before the applicable due date for filing the income-tax return. According to BCAS reports, the form requires detailed information including specified account details, account statements, evidence regarding taxation in the foreign country, and computation of income for all tax years where income from the specified account has already been included in total income. Form 40 can only be submitted online through the Income Tax e-Filing portal and requires a valid PAN of the specified person exercising the option. Once exercised for a tax year, the option cannot be withdrawn for that year and applies to all subsequent tax years. As per Mint, the form must be filed electronically on the e-filing portal of Income Tax Department using either a digital signature certificate or an electronic verification code and must be verified by the eligible taxpayer. Once Form 40 is submitted along with self-declaration by the specified person, and acknowledgment is generated, it cannot be edited, and there is no offline route to file Form 40.

While Form 40 has been introduced under new tax legislation, the underlying policy objective remains largely unchanged from the existing framework. As reported by Dhruva Advisors, Section 158 of the Income-tax Act, 2025 substantially continues the framework that existed under Section 89A of the Income-tax Act, 1961. The relief was originally introduced to address cross-border timing differences in taxation of retirement savings and continues to serve the same purpose of reducing timing mismatches between different jurisdictions' tax treatment of retirement account income. According to Mint, the Form 40 seeks to address a tax timing mismatch that can arise when a person becomes a tax resident of India while continuing to maintain retirement savings in other foreign countries, offering relief from accrual taxation.