Dividend accrued from foreign retirement account

For an Indian resident (Resident and Ordinarily Resident) holding a foreign retirement account, the tax treatment and disclosure requirements depend heavily on whether you choose to exercise the relief under Section 89A of the Income Tax Act.

1. Taxation of Accrued Dividends

• Without Section 89A: Since India taxes global income on an accrual basis, dividends accrued in a foreign retirement account are taxable in India in the year they accrue. You must report this as income in your ITR.

• With Section 89A: This provision allows you to defer the tax on this accrued income until the year you actually withdraw the money from the foreign account, aligning the Indian tax treatment with the tax treatment in the foreign country.

2. Disclosure and Reporting

Even if you do not want to claim the relief under Section 89A, you are still required to disclose the foreign assets and income to the Income Tax Department:

• Schedule FA (Foreign Assets): This is mandatory for all residents who hold any foreign asset or have a financial interest in an entity outside India. You must disclose the retirement account details in the appropriate table (typically under foreign custodial or financial interests) in Schedule FA.

• Schedule FSI (Foreign Source Income): If you earn income (dividends, interest, etc.) from foreign sources, it must be reported in Schedule FSI.

• Schedule OS (Income from Other Sources): If the dividends are not considered part of your salary (which they typically aren't, unless specifically structured as part of an employment compensation scheme), they are generally reported under "Income from Other Sources."

3. Regarding Form 10EE

• Purpose: Form 10EE is used specifically to exercise the option to claim the tax relief under Section 89A.

• Is it mandatory?

  • If you do not want to claim the Section 89A relief, you do not need to file Form 10EE.

  • However, by not filing it, you lose the ability to defer the tax. You will be liable to pay tax on the accrued dividends in the current year.

  • Note that the option to opt for Section 89A is irrevocable once exercised.

Summary for your ITR filing:

• If you do NOT opt for Section 89A: You must report the accrued dividends as income in your ITR (usually in Schedule OS), pay the applicable tax, and ensure the asset is disclosed in Schedule FA.

• If you DO opt for Section 89A: You must file Form 10EE electronically on the e-filing portal before filing your ITR. Once filed, you can report the income in your ITR while claiming the deferment/relief as per the provisions of Section 89A.