401(k) tax in India for NRIs: Section 89A & Section 158 Guide (2026)

India taxes your 401(k) accruals every year the moment you become Resident and Ordinarily Resident — even before you withdraw a rupee. Section 89A (Income Tax Act, 1961), now Section 158 under the 2025 Act, legally defers that tax to your actual withdrawal year. But only if you file Form 10-EE before your ITR deadline.

Table of Contents

1. What Is Section 89A / Section 158?

2. Who Does This Apply To?

3. Which Act Governs Your Return — 2026 vs 2027 Filing Timeline

4. Notified Countries: The Updated List for 2026

5. DTAA Article 20 vs Article 23 — The Withdrawal Decision That Changes Everything

6. RNOR Status: Your Tax-Free Window

7. Roth IRA & Roth 401(k) — India's Grey Area

8. How to File Form 10-EE (FY 2025-26) / Form 40 (FY 2026-27 onwards)

9. Real Examples with ₹ Math

10. What If You Don't File Form 10-EE or Form 40?

11. What If Something Goes Wrong?

12. Penalties

13. FAQ — 10 Questions Indian NRIs Actually Search

What Is Section 89A / Section 158?

India taxes residents on their global income. And India normally taxes income on an accrual basis — meaning the interest or gains that build up inside your 401(k) each year get counted as your income for that year, even if you haven't touched the money.

The problem? The US doesn't tax your 401(k) until you actually withdraw it. So without relief, you'd pay Indian tax every year on money you can't yet access — and then face a timing mismatch when trying to claim the India-US DTAA credit.

Section 89A (Income Tax Act, 1961) — now renumbered as Section 158 under the Income Tax Act, 2025 — fixes this. It shifts the taxation from accrual basis to withdrawal basis for income from retirement benefit accounts held in notified countries. You pay Indian tax only in the year you actually withdraw the money — the same year the US taxes it — so the two tax events align perfectly.

Rule 21AAA and Form 10-EE operationalise Section 89A. Under the 2025 Act, the equivalent compliance form is Form 40.

Who Does This Apply To?

Partial/Conditional Cases:

• If you became RNOR after returning, your 401(k) income isn't taxable in India during that period regardless of Section 89A — but you should still file Form 10-EE in your first ROR year to lock in the deferral for future years.

• If only part of your 401(k) balance was built while you were an NRI, only that portion qualifies as a "specified account."

401(k) Tax in India for NRIs: Which Act Governs Your Return — 2026 vs 2027 Filing Timeline

This is the biggest source of confusion right now, and nearly every competitor article gets it wrong or ignores it entirely.

Here's the clean split:

The Income Tax Act, 2025 replaced the 1961 Act effective 1 April 2026. But your FY 2025-26 return — the one due in July 2026 — still uses 1961 Act numbering. The 2025 Act numbering kicks in only for income earned from 1 April 2026 onwards, filed in AY 2027-28.

So if your CA cites Section 89A on your July 2026 ITR, they're correct. If they cite Section 89A on your July 2027 ITR, flag it — the right number is Section 158.

For more on how the two Acts differ section by section, see Toolisky's full breakdown: Income Tax Act 2025 vs 1961: What Every Indian Taxpayer Must Know.

Notified Countries: The Updated List for 2026

Most articles you'll find online list three notified countries: USA, UK, and Canada. Several articles incorrectly add Singapore to this list — Singapore is not notified under Section 89A / Section 158.

CBDT officially notified USA, United Kingdom of Great Britain & Northern Ireland, and Canada under the relevant rules. Multiple sources indicate Australia has been added as a fourth notified country, but:

[VERIFY: Confirm Australia's inclusion via the official CBDT notification number and date at incometaxindia.gov.in before publishing. Do not state Australia as confirmed until this is verified.]

Until you get official confirmation, treat your Australian superannuation account as potentially qualifying — but get a CA to verify the current notification status before filing.

What qualifies as a "specified account" in these countries:

*Roth accounts — contested. See the Roth IRA section below.

DTAA Article 20 vs Article 23 — The Withdrawal Decision That Changes Everything

This is the most practically important distinction in this entire article, and almost every competitor skips it.

The India-US Double Tax Avoidance Agreement (DTAA), signed in 1989, treats your 401(k) withdrawals differently depending on how you take the money out.

Article 20 — Pensions (Periodic Payments) If you set up regular, periodic distributions from your 401(k) — monthly or quarterly — these qualify as pension income under Article 20. Once you file Form W-8BEN with your plan administrator and cite Article 20, the US drops its withholding to zero. You pay Indian tax only, at your applicable slab rate.

Article 23 — Other Income (Lump-Sum Withdrawals) Take your full balance in one shot? That doesn't qualify as a periodic pension payment. It falls under "Other Income" in Article 23. Both countries retain the right to tax it. The US withholds 30% by default, and India also taxes it at slab rates. You can claim the US tax paid as Foreign Tax Credit (FTC) in India using Form 67 — but you're still paying the higher of the two rates rather than just one.

The numbers behind the decision:

Suresh, 62, has ₹1.5 crore (~$180,000) in his 401(k). He's now ROR in India.

The monthly structure saves Suresh tens of lakhs over a 10-year drawdown period. Set this up before you board the return flight.

RNOR Status: Your Tax-Free Window

When you first return to India, you typically get RNOR (Resident but Not Ordinarily Resident) status for 2 to 3 years. During RNOR, India does not tax income that accrues or arises outside India.

Your 401(k) accruals — interest, dividends, capital gains inside the account — don't enter your Indian taxable income during RNOR. That's your window. Withdrawals taken during RNOR are also generally not taxable in India.

RNOR eligibility (per Section 6 of the Income Tax Act, 1961): You qualify as RNOR if you've been an NRI for 9 out of the preceding 10 financial years, OR were present in India for 729 days or fewer in the preceding 7 years.

Practical tip: Return to India in April — at the start of a financial year — to maximise your RNOR window. This gives you a full year as RNOR instead of a partial year.

Once your RNOR period ends and you become ROR, that's when Section 89A (or Section 158 from FY 2026-27) becomes critical. File Form 10-EE in your first ROR year's ITR — that's the deadline. Miss it and you lose the ability to defer accruals from that year onward.

Use Toolisky's Old vs New Tax Regime Calculator to estimate your Indian slab liability once you start making withdrawals as an ROR resident.

Roth IRA & Roth 401(k) — India's Grey Area

Here's the honest answer: nobody can give you a definitive ruling on Roth IRA taxation in India right now. Even experienced cross-border CAs disagree.

The issue is structural. Section 89A / Section 158 applies to accounts "taxed by that country at the time of withdrawal or redemption." A Roth IRA is funded with post-tax dollars in the US — qualified withdrawals are completely tax-free there. So India's logic for deferral (wait until the foreign country taxes it, then India taxes it in the same year) breaks down. There's no foreign taxing event to sync with.

Two interpretations in the field:

1. Stricter view: Roth IRA doesn't qualify as a "specified account" because the US doesn't tax qualified withdrawals. India would then tax annual growth (interest, gains inside the account) on an accrual basis once you're ROR. This is the more conservative position.

2. Broader view: The account was contributed from post-tax income while the taxpayer was an NRI. The "spirit" of Section 89A should cover it, and the income isn't being double-taxed. Some CAs file Form 10-EE for Roth IRAs under this interpretation.

CBDT has not issued a clarification. Until it does, consult a CA who specialises in India-US cross-border taxation before filing. Don't assume your Roth IRA is tax-free in India — that assumption has caught people out.

How to File Form 10-EE (FY 2025-26) / Form 40 (FY 2026-27 onwards)

For AY 2026-27 (FY 2025-26) — File Form 10-EE

1. Log in to the Income Tax e-filing portal at incometax.gov.in

2. Go to e-File → Income Tax Forms → File Income Tax Forms

3. Search for Form 10-EE in the form list

4. Select the relevant Assessment Year: AY 2026-27

5. Fill in: the notified country (e.g., USA), account type (e.g., 401(k)), and the gross income accrued in the account during the year

6. In Schedule-S (salary) and Schedule OS (other sources) of your ITR, report the gross accrued income and claim relief under Section 89A

7. Submit Form 10-EE before you submit your ITR (deadline: 31 July 2026 for non-audit cases)

8. Download the acknowledgement

ITR form to use: ITR-2 (if no business/professional income) or ITR-3. You cannot use ITR-1 or ITR-4 if you have a foreign retirement account — this changed from AY 2026-27.

One important fact competitors get wrong: Once you file Form 10-EE and exercise the Section 89A option, the option applies to all subsequent years automatically — you don't need to re-file Form 10-EE every year for the same account. Rule 21AAA(6) is clear on this. The option is irrevocable for that account.

However, you must still report the account in Schedule FA (Foreign Assets) of your ITR every year, even while deferring tax.

Real Examples with ₹ Math

Example 1 — Common Case: Suresh Returns After 20 Years in the US

Suresh (age 60, returns April 2026) worked in the US from 2006 to 2026. He has a Traditional 401(k) worth ₹1.2 crore (approximately $144,000 at ₹83/USD). The account earns ₹6 lakh in interest and gains in FY 2026-27 while he's an ROR resident.

Without Section 158 (2025 Act) / accrual basis:

• ₹6 lakh added to Indian taxable income in FY 2026-27

• Assuming no other income, and new regime: ₹6 lakh falls in the 5% bracket (₹3-7L)

• Tax on ₹6L = (₹3L × 0%) + (₹3L × 5%) = ₹15,000 per year — just on accruals

Over 10 years of non-withdrawal, Suresh would pay roughly ₹1.5–3 lakh (compounding as account grows) in Indian tax on money he hasn't withdrawn.

With Section 158 (2025 Act) / Form 40:

• No Indian tax on the ₹6 lakh accrual this year

• Tax deferred to the year of actual withdrawal

• When Suresh withdraws ₹10 lakh in FY 2028-29, that ₹10 lakh is added to his income and taxed at his applicable slab rate that year

• If his total income that year is ₹25 lakh (new regime): tax on ₹10L portion = ₹2-3 lakh, but he can claim US FTC via Form 67 for any US tax withheld

Arithmetic check on new regime FY 2026-27 (Tax Year 2026-27):

• ₹0–3L = 0%, ₹3L–7L = 5%, ₹7L–10L = 10%, ₹10L–12L = 15%, ₹12L–15L = 20%, above ₹15L = 30%

Example 2 — Edge Case: Priya Takes a Lump Sum Without DTAA Planning

Priya (age 54) returns to India in January 2026. She becomes ROR in FY 2026-27. In April 2027, she withdraws her entire 401(k) of $120,000 (₹1 crore at ₹83/USD) in one lump sum.

US side:

• Early withdrawal penalty (she's 54, under 59½): 10% = $12,000 (₹9.96 lakh)

• US federal withholding: 20–30% on the remaining $108,000 = approx. $27,000 (₹22.4 lakh)

• Total lost to US = ~$39,000 (₹32.4 lakh)

India side:

• Remaining ₹67.6 lakh reaches her Indian bank account

• But the full ₹1 crore is her Indian income (FTC claimed for US tax paid)

• Assuming no other income, new regime: Total tax on ₹1 crore under Tax Year 2026-27

  • First ₹3L: ₹0

  • ₹3L–7L (₹4L × 5%): ₹20,000

  • ₹7L–10L (₹3L × 10%): ₹30,000

  • ₹10L–12L (₹2L × 15%): ₹30,000

  • ₹12L–15L (₹3L × 20%): ₹60,000

  • ₹15L–₹1Cr (₹85L × 30%): ₹25,50,000

  • Gross India tax: ₹26,90,000 (before FTC)

  • Less FTC (Form 67, for US tax withheld): ~₹22.4 lakh

  • Net India tax payable: ~₹4.5 lakh

  • Add 4% health & education cess: ₹4.68 lakh

• Plus 4% cess on US penalty she can't recover: another pain point

Total damage: ~₹37 lakh — nearly 37% of her corpus gone.

Had Priya set up ₹83,000/month periodic withdrawals under Article 20, her US withholding would be zero, and her Indian tax would be spread across 10 years at much lower slab rates.

What If You Don't File Form 10-EE or Form 40?

This is where competitors go completely silent. Here's what actually happens:

Consequence 1: Accrual Basis Tax Applies — Every Year Without Form 10-EE filed, India taxes your 401(k) income as it accrues — annually, whether or not you've withdrawn anything. Interest, dividends, and capital gains inside the account get added to your total income each year as an ROR resident.

Consequence 2: You Lose the Timing Benefit — Permanently for Past Years The option must be exercised before filing your ITR for that year. You can't go back and retrospectively defer last year's accruals. Once a year is assessed with accrual-basis income, that income is taxed — Section 89A / Section 158 won't rescue past years you missed.

Consequence 3: Double Taxation Risk on Withdrawal When you eventually withdraw, the US taxes it at that time. But India has already taxed the same income on an accrual basis in earlier years. Rule 21AAA does allow an exclusion for income already taxed in India — so you won't literally pay Indian tax twice on the same rupee. But the mismatch creates complexity, potential FTC disputes, and cash flow problems.

Consequence 4: Schedule FA Penalty Risk Every ROR resident must declare foreign assets in Schedule FA of their ITR annually. Failure to report a 401(k) account — whether or not Form 10-EE is filed — can attract a penalty of ₹10 lakh per year under the Black Money Act, 2015, and potential prosecution.

The bottom line: file Form 10-EE in your first ROR year's ITR, not your second, not your third.

What If Something Goes Wrong?

Scenario 1: You missed the Form 10-EE deadline for a past year You cannot retroactively claim Section 89A deferral for a year that's already been assessed. File Form 10-EE in the current year's ITR to start deferral going forward. For the past year's accruals — if taxes were already assessed — you may need to revisit with a revised return if the window is still open (usually within 2 years of the end of the relevant AY). Consult a CA; this is case-specific.

Scenario 2: The portal shows an error when submitting Form 10-EE Common fix: clear browser cache, use Chrome or Edge (not Safari), and ensure your profile is updated with your current India address. If the form still doesn't save, try the offline XML utility under "Download" on the portal — fill it offline and upload it. Keep a screenshot of any error message.

Scenario 3: Your plan administrator withheld 30% US tax even after you filed W-8BEN for Article 20 File a US tax return (1040-NR) to claim a refund of the excess withheld. If the plan administrator failed to process W-8BEN correctly, contact the IRS and document the W-8BEN submission date. This is a recoverable situation but takes 6–18 months to resolve. Don't stop periodic withdrawals in the meantime — the W-8BEN issue is an administrative fix, not a treaty disqualification.

Penalties

Do you know your late-filing interest liability? Toolisky's Section 234A, 234B, 234C Interest Calculator gives you the exact rupee figure in seconds.

FAQ — 10 Questions Indian NRIs Actually Search

1. Is 401(k) withdrawal taxable in India for an NRI returning home? Not while you're still NRI or RNOR. Once you become ROR (Resident and Ordinarily Resident), your global income — including 401(k) withdrawals — is taxable in India. Section 89A / Section 158 defers the accrual-basis tax, so you're taxed only in the year of actual withdrawal. File Form 10-EE before your first ROR ITR to activate the deferral.

2. What is the difference between Form 10-EE and Form 40? Same function, different Acts. Form 10-EE is the declaration form under Section 89A of the Income Tax Act, 1961 — used for ITRs up to AY 2026-27 (FY 2025-26). Form 40 is its replacement under Section 158 of the Income Tax Act, 2025 — applicable from AY 2027-28 (FY 2026-27) onwards. The underlying relief is identical; only the section number and form name changed.

3. Do I need to file Form 10-EE every year? No — and this is a common myth. Once you file Form 10-EE and exercise the Section 89A option, it applies to all subsequent years for that account automatically under Rule 21AAA. You cannot revoke it. You do, however, need to report the account in Schedule FA every year. [VERIFY: Confirm Rule 21AAA(6) wording on auto-continuance at incometaxindia.gov.in]

4. What happens to my 401(k) tax during the RNOR period? During RNOR, income accruing outside India is generally not taxable in India at all — you don't even need Section 89A relief during this period. The RNOR window (typically 2–3 years after returning) is when you should consider making larger 401(k) withdrawals, since your Indian tax on those is zero. File Form 10-EE in your first ROR year to continue the deferral.

5. Is Roth IRA taxable in India for returning NRIs? This is genuinely unsettled. Roth IRA withdrawals are tax-free in the US, which creates a problem: Section 89A defers Indian taxation to the year the foreign country taxes the income. If the US never taxes it, the deferral mechanism has no sync point. Some CAs file Form 10-EE for Roth IRAs anyway under a broader interpretation; others treat the annual growth as taxable in India on an accrual basis once you're ROR. CBDT has not clarified this. Consult a cross-border tax specialist before filing.

6. What's the difference between DTAA Article 20 and Article 23 for 401(k)? Article 20 covers periodic pension payments — monthly or quarterly distributions. If you set these up correctly and file Form W-8BEN citing Article 20, the US withholds zero tax, and you pay only Indian slab rates. Article 23 covers "other income" including lump-sum withdrawals — both countries can tax these, with FTC available in India for US taxes paid. The difference can easily amount to ₹20–40 lakh on a large corpus.

7. Which ITR form should I file if I have a 401(k) or IRA? (AY 2026-27) ITR-2, if your income doesn't include business or professional income. ITR-3, if it does. You cannot file ITR-1 (Sahaj) or ITR-4 (Sugam) if you hold any foreign retirement account — this requirement was tightened from AY 2026-27. Report the account under Schedule FA and claim Section 89A relief in Schedule OS.

8. I forgot to file Form 10-EE last year. Can I still get the deferral? You can't get a retroactive deferral for a year already assessed. But you can file Form 10-EE this year and defer going forward. If last year's return is still within the revision window (within 2 years of the end of the relevant AY under Section 139(5) of the 1961 Act), a revised return with Form 10-EE may be possible — but this is fact-specific and needs a CA.

9. What is RNOR status and how many years does it last? RNOR stands for Resident but Not Ordinarily Resident. You qualify if you've been an NRI for 9 out of the preceding 10 financial years, or were in India for 729 days or fewer in the preceding 7 years. For most people who spent a decade or more in the US, RNOR status lasts 2–3 years after returning. It's your tax-free window for foreign income.

10. Can Singapore-based retirement accounts claim Section 89A relief? No. Singapore is not a notified country under Section 89A / Section 158. The relief applies only to accounts in notified countries: USA, UK, and Canada (officially confirmed); Australia is under discussion but [VERIFY: check CBDT notification before advising clients]. Singapore pension schemes like CPF are not eligible.

If you're returning to India with a 401(k) or IRA, do three things today: calculate your RNOR window, set up periodic distributions before you board the flight (to lock in DTAA Article 20), and file Form 10-EE in your first ROR ITR — not your second. The deferral is automatic after that, but only if you claim it in time.

Estimate your Indian tax liability on 401(k) withdrawals using Toolisky's Foreign Interest Tax Calculator as a starting point. For official rules on foreign income reporting, the Income Tax Department's e-filing portal at incometax.gov.in is the authoritative source — verify every CBDT notification number before acting.

For educational purposes only. Verify all figures at official sources before acting. Toolisky is not affiliated with any government body. Consult a qualified CA or legal professional before making compliance decisions. See toolisky.com/accuracy-and-limitations.