Form 40 is a newly prescribed compliance form under the updated Income Tax Act, 2025, designed to help Indian residents manage taxation on foreign retirement savings in a structured manner. According to reports from Mint, this form is particularly relevant for individuals who have worked abroad, contributed to retirement schemes such as 401(k) plans, and later become residents of India. The form allows tax deferral of income accruing in foreign retirement accounts until actual withdrawal or redemption abroad, rather than taxing it on an accrual basis each year in India.
Form 40 is relevant for 'specified persons' - individuals who opened retirement benefit accounts in notified foreign countries while being residents of those countries and non-residents in India at that time. As reported by Mint, the notified countries include the US, UK, Canada, and Australia, where retirement systems such as 401(k) plans, IRAs, pension schemes, and similar accounts are commonly maintained. The option to defer taxation under Form 40 is voluntary, but once exercised, it applies to all eligible retirement accounts held in notified countries.
Without Form 40, India may tax income from foreign retirement accounts on an annual accrual basis once a person becomes a resident. According to Mint, this means even unrealised gains or yearly growth in such accounts could become taxable in India. However, when Form 40 is opted for, taxation is deferred until the actual withdrawal or redemption of funds abroad. This mechanism closely aligns Indian taxation with treatment followed in many foreign jurisdictions, thereby reducing timing differences and potential double taxation.
Form 40 must be filed electronically through the Income Tax e-filing portal with authentication through Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). As reported by Mint, the filing involves detailed disclosure of all foreign retirement accounts covered under the option, with taxpayers required to make self-declaration confirming exercise of the option for all eligible accounts. The form must be submitted on or before the due date of filing the income tax return, and once exercised, the option applies to the relevant tax year and continues for subsequent years.
Form 40 requires extensive documentation including foreign retirement account details, account statements from foreign financial institutions, details of foreign country taxation, and reconciliation between foreign account income and Indian tax filings. According to Mint, incorrect or incomplete disclosure may result in denial of deferral benefit, leading to taxation on an accrual basis. The option once chosen continues for all eligible accounts in notified countries and cannot be selectively applied, creating long-term consistency in tax treatment.
