Section 89A for former NRI and now ROR

Accrued income has to be reported so I feel Yes for 1) and 2) as IT department has power to reject form 10-EE for whatever reasons and this is in alignment for people having retirement accounts even in say other jurisdictions like EU which don't get benefit of 89A however from tax calculation perspective I am not clear if its cumulative income since one became ROR or if its just previous years income like other items in the return.

Waiting for clarification from IT department as its not clear. If none available, I would just go with FY 22 accrual

Per rule 21AAA, even if amount is not withdrawn, Tax has to be paid on the retirement age or if one becomes NRI again . Form 10-EE ( Section 5.viii  is also asking for eligible withdrawal date.  (Specify the previous year in which the income from specified account is eligible to be withdrawn (yyyy-yyyy) )

In fact as per old CBDT circular , accrued amount was to taxed as well per circular without benefit of foreign tax payments( See Q2/Q3 here at https://www.incometaxindia.gov.in/Communications/Circular/Circular15_2015.pdf ) but there were some high court rulings to contrary and also some technicalities. Please see shorturl.at/aotvw

In Form 10-EE , there is a footnote asking for reconciliation on tax payments made already hence it seems some people have made tax payments as well.( (vi) Please attach the computation of income for all the previous years [as per column (x) of paragraph 5] in which the income from specified account has already been included in the total income)
 

I am resident for last 15 years.

I have been receiving withdrawals called distribution from my retirement plan from last 6 years and offering entire amount as part of  taxable global income each year in India.

The account holds assets whose market value changes every day. Changes in market value cannot be considered accrued value. Value is realized on selling the assets at the time of withdrawal like stocks one holds. 

Attended webinar on Form 10EE yesterday and learnt that amount has to be in foreign currency. No mention in instruction manual.

Don't understand Option YES/NO of Form 10EE. My situation is like cut RED or Green wire ? since there is no point of return.

I am sharing my views. Comments are welcome.

My view as below

The option(yes/No) is for deferral of income . Yes means deferral of income with tax to be paid in withdrawal year, No means no deferral and tax to be paid every year. Issue here is that its not clear  how annual capital losses would be handled if the No option is chosen as there is no carry forward mechanism.

Historically, you have chosen the option as No effectively for the past 15 yrs but for income you used only distributions and not the capital value changes.

I am assuming that the distributions was not a withdrawal to a Bank account but rather like a like a dividend which is locked in the retirement account. If one is able to withdraw cash to bank accounts, makes sense to pay tax every year on the withdrawals as one can also take benefit of foreign taxes paid via DTAA.

Assuming that withdrawal is not to Bank accounts, I feel that going forward You should have the 10-EE option as 'Yes'  and don't pay tax going forward on annual distributions/fund dividends till the final withdrawal is done. Take full benefit of deferral until one has the ability to close the retirement account and withdraw. When you do final withdrawal/close account at say age of 60 for 401k style plans , pay tax on the entire increment in retirement account from the time you became ROR taking credit for taxes already paid. Once you withdraw, use 35-50% of the money to pay accumulated tax .

The form 10-EE/ITR 2  anyway allows you to get the benefit of tax paid when you make the final withdrawal so nothing lost on historical payments. Make sure your CA fills in the reconciliation form in form 10-EE. There is no significant tax saving in either  yes or no options. Its just enabling payment of tax at future date and also enabling credit for foreign tax payments.

There is so much tax headache in maintaining these foreign retirement accounts that the moment one is able to withdraw, better to close these .

B) Regarding "Changes in market value cannot be considered accrued value"
Income tax department has a seperate definition of accrual for retirement accounts per CBDT circular 15 of 2015 (It is income, dividend, capital gain or any other sum) . Keyword 'Any' and I feel also including even unrealised capital gain. Unfortunately no guidance on how capital losses taken into account here. 

C)Having amount in foreign currency doesnt work as the CSV form which is to be upload/ed doesn't have any placeholder for currency code. It would have to be Foreign currency amount converted to Rs .   (format of the CSV field for the amounts is Numeric, 16 characters maximum, 2 Decimal point) per instructions hence no way to mention currency and amount as text either.

Dear sir

            Sorry for being late and thanks a lot for your views. 

Withdrawal in cash to a bank account is called "distribution". Cash is generated on selling capital assets. I have been taking these withdrawals in cash variable amount  to my bank account each year so far and have planned to continue till last payment received and account closed. I declare these withdrawals and pay tax in US and India every year taking DTAA advantage.

you write "you have chosen the option as No effectively for the past 15 yrs" 

So my option will be "NO" . 

Also I need not fill column (x) since there is no "accrued income on which tax is paid ". Income is received and tax paid.
Please confirm and I am profusely grateful to you for your inputs. My CA is not even aware of 10EE unfortunately.

Anxiously awaiting your response

Sunil Verma.

 

Continued  from previous response.

Reading this "Yes means deferral of income with tax to be paid in withdrawal year" . I my case withdrawals are every year so my option should be "YES" unless withdrawal year is last terminal year and not every year.

Again CONFUSED.

Sir, I am not a CA but ex-NRI similar to you so just a opinion/view.

Your case is a bit complicated as there is deferment of unrealised capital gains and withdrawal of realised capital gains. The section 89A was introduced for accounts where withdrawals cant be made(say for a 50 yr old ex NRI who can withdraw only at 60) and thus there were DTAA issues. As you can withdraw, there is no need to defer .

I think Option is 'NO' in your case as this is as actual withdrawal and you don't intend to take benefit of 89A and defer income. Your main concern is regarding unrealised capital gains income.
Only issue is that while there is no deferral of the capital assets sale income through realised capital gains, There can be a component of unrealised capital gains which you are deferring.
For e.g if Asset value was 100 last year, 103 this year along with cash distribution of  2 , your net income as per CBDT rule (any increment) is 3+2 =5  , you only show 2 as income currently.
That being said, whenever you make a final withdrawal, you would pay tax on it, so there is no tax avoidance anyway. One issue I see is that , by the time you make the final withdrawal and close the account, you would have to pay taxes on the entire distribution amount while you can get disallowance for the amount when you were NRI (Say the asset value 15 yrs ago when you were NRI was 30, you should ideally have got a disallowance of Rs 30 as  IT department only wants to tax only the increments while you were Indian resident and not the asset which you created as a NRI) 
Then again this is a complicated topic involving DTAA etc and see lot of litigation on this. Would suggest getting some expert CA firm if the amounts involved are big as maybe good CA can even help you in getting the benefit of the disallowance which you have foregone.

Sir, appreciate and thanks for your prompt response. 

Where exactly does it say the amounts in Form 10-EE must be entered in foreign currency? The instructions are entirely silent on the currency. And I don't know of a single instance where an Indian IT filing form expects figures in a foreign currency. For reference, Schedule FA requires figures to be converted to rupees. If FA requires it in rupees, why would Form 10-EE, which is of a similar nature (both have capital asset values to report), require it in foreign currency? Unless stated otherwise, we'd need to use the SBI TTBR exchange rate on an applicable day. 

Sir

     Sir

Your reasoning is valid. I reported what I heard in Webinar on 10EE on 14-7-22 for which I received email. Unfortunately I don't have recordings for evidence. I am attaching home page of e-filing website announcing webinar on 10EE. 

Also eligible date of withdrawal cannot be past dates as per instructions and in my case it is past date. So lots of confusion. There was more information on how to fill each line in CSV document but I don't want to add to confusion.

Better file before due date than NOT so I filed already with statement on explanations. It will bounce back for sure.

There are two sets of values in the form

Balance as on last day of the financial year prior to the previous year for which this Form is being filled(v)

Amount of Income from the specified account which was not taxable in India due to reasons referred in clause (b) of sub-rule (2) of rule 21AAA (in Rs)(xii)
 

(V) is also to be tallied with statement and probably required in foreign currency.
Maybe because its an intermediate number and not calculation, Additionally needs to tally with statement, IT dept needs in foreign currency.

Another reason, I can think of is that realized gains need in FX need to be converted only in withdrawal year so current FX rate for this balance is not needed.  

Gains in Rs = (Value of account on withdrawal date(say after 5 yrs)- Value mentioned in (v) ) *(FX rate on withdrawal day (say 100 after 5 yrs)

(Xii) is clearly mentioned to be in Rs

> Income tax department has a seperate definition of accrual for retirement accounts per CBDT circular 15 of 2015

> (It is income, dividend, capital gain or any other sum) . Keyword 'Any' and I feel also including even unrealised

> capital gain. Unfortunately no guidance on how capital losses taken into account here. 

This part isn't really accurate. One can't come up with separate definitions and interpretations of income or accrued income in circulars that go against the Act itself. I'm making the point below, which I made at another forum as well. Please see this expert article from EY for the interpretation of "accrued income" based on past rulings: https://assets.ey.com/content/dam/ey...s.pdf?download, which refers to a previous ruling. It states the following with a reference to that previous ruling:

The term “accrual” has a specific connotations per settled jurisprudence under the ITL. It means that there is perfected entitlement and enforceable right in favour of the taxpayer and corresponding obligation on the other party to pay the taxpayer.

The most important word here is "perfected entitlement". An increase in a fund value of a capital asset doesn't automatically mean income or accrued income unless there is a perfected entitlement to receive it. The fact that there would be a penalty on withdrawal is exactly the opposite of "perfected entitlement"! (for reference, "perfected" per an English dictionary "is make (something) completely free from faults or defects; make as good as possible"). So this whole rule and filing depend on the kind of retirement account, I believe -- if a withdrawal or redemption of a capital asset is going to attract a penalty, then all of Section 89A, Rule 21AAA, and Form 10EE are inapplicable as there is no accrued income in the first place; it's just unrealized capital gain. All of the wording in these rules starts with "where a specified person has accrued income in ...". On the other hand, if the retirement account provides one an opportunity to withdraw even a part without penalty (say dividends), it would be considered accrued income. Considered the increase in fund value as accrued income would be tantamount to considering the increase in land value, other property value, or the value of stocks/securities as accrued income. I don't think there's anywhere in the world they would do this!

So, the bottom line is to consider the nature of the retirement account and the nature of the increase in the value of the asset and whether the taxpayer is already *entitled* to withdraw any of it without any encumbrance irrespective of whether he actually withdraws it.

Originally posted by : Sunil Verma
	Sir      Sir Your reasoning is valid. I reported what I heard in Webinar on 10EE on 14-7-22 for which I received email. Unfortunately I don't have recordings for evidence. I am attaching home page of e-filing website announcing webinar on 10EE.  Also eligible date of withdrawal cannot be past dates as per instructions and in my case it is past date. So lots of confusion. There was more information on how to fill each line in CSV document but I don't want to add to confusion. Better file before due date than NOT so I filed already with statement on explanations. It will bounce back for sure.

Sir,

The website was having facility for filing of revised form so maybe once IT department clarifies , they would allow revised 10-EE. There is a large thread on this topic in r2i NRI forums which also has an this example pdf

https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/alerts_pdf/2022/04/cbdt-notifies-rule-and-countries-for-deferral-of-taxation-of-income-from-retirement-benefit-account-services.pdf?download

Couple of additional things I learned there are

a) This Rule only applies to 'specified' accounts which have a future withdrawal date. For e.g 401(k) and normal IRA in US covered. Roth IRA not covered  as definition of specified account as it is not specified account

b) Only withdrawals to be shown in ITR form and not annual accruals. People confused whether this should tally with FA section or not.

c) No need to fill this form if you are planning to take  'NO' option or need more time to decide as the default status is anyway 'NO' and 'YES" is special deferral facility given by IT department. You can even fill this form say after 2-3 yes.