DOUBLE TAXATION FOR NRI

Subject: Economics

Context: The new Section 89A aims to solve the issue of double taxation on retirement accounts of NRI employees

Concept:

Mobile employees are required to mandatorily open social security / retirement fund accounts in the host country; it also acts as an effective way of tax deferral in such countries as income from such contributions are tax deferred to the year of withdrawal / closure of such accounts.
This is a common tool adopted by most Indian employees who are seconded to countries like the US and in majority of such cases, the employees are non-resident in India in the year of opening the accounts / making contributions whereas at the time of maturity / closure of the account, such employees who are already back home, become tax resident in India.
Taxation of income from such contributions poses a major challenge for such employees in India.
Taking a cognisance of this difficulty and various representations in this regard, the finance minister has proposed to introduce a mechanism via a new provision, viz. Section 89A in the Income Tax Act, 1961, to reduce the hardship caused to such employees with effect from financial year 2021-22.
The proposed section provides tax income accrued to a specified person in a specified account in such manner and in such a year as may be prescribed.

Double Taxation

Double taxation is a tax principle referring to income taxes paid twice on the same source of income.
It can occur when income is taxed at both the corporate level and personal level.
Double taxation also occurs in international trade or investment when the same income is taxed in two different countries.