Rule 74 of the Draft Income-tax Rules, 2026 provides a framework for taxation of income accrued in a retirement benefit account maintained in a notified country. It allows a specified person, at their option, to defer inclusion of income accrued in such specified account(s) and instead offer it to tax in India in the year in which the income is taxed upon withdrawal or redemption in the notified country. Where this option is exercised, income already taxed in earlier years or income that was not taxable in India due to non-resident or not ordinarily resident status, or due to application of a Double Taxation Avoidance Agreement, shall not be included again; further, foreign tax paid on such income shall be ignored for computing foreign tax credit under Rule 76. The option must be exercised for all specified accounts and furnished in Form No. 40 on or before the due date under section 263(1)(c). If the individual becomes non-resident in a subsequent year, the option is deemed never exercised from that relevant tax year, and previously deferred income becomes taxable in the immediately preceding year, with tax payable by the return filing due date. Once validly exercised, the option applies to all subsequent years and cannot be withdrawn. Definitions of “notified country,” “specified account,” and “specified person” follow section 158(2) of the Act.
Extract of Rule No. 74 of Draft Income-tax Rules, 2026
Rule 74
Taxation of income from retirement benefit account maintained in a notified country
(1) If a specified person has income accrued in a specified account or accounts during a tax year, such income shall, at his option, be included in his total income of the tax year in which income from the said account or accounts is taxed upon withdrawal or redemption, as the case may be, in the notified country.
(2) Where the option has been exercised by a specified person under sub-rule (1), the total income of the specified person for the tax year in which income is taxable under sub- rule (1) shall not include the income which, —
(a) has already been included in the total income of such specified person in any of the earlier tax years during which such income accrued and tax thereon has been paid in accordance with the provisions of the Act; or
(b) was not taxable in India, in the tax year during which such income accrued, on account of,—
(i) such specified person being a non-resident, or not ordinarily resident as referred to in section 6(13), during that tax year; or
(ii) application of the Double Taxation Avoidance Agreement, if any, and the foreign tax paid on such income, if any, shall be ignored for the purposes of computation of the foreign tax credit under rule 76.
(3) The option under sub-rule (1) by the specified person shall be exercised
(a) in respect of all the specified accounts maintained by the specified person; and
(b) in Form No. 40, which shall be furnished on or before the due date specified under section 263(1)(c) of the Act.
(4) In a case where the specified person becomes a non-resident during any relevant tax year, then—
(a) the option exercised under sub-rule (1) shall be deemed to have never been exercised with effect from the relevant tax year; and
(b) the income which has accrued in the specified account or accounts during the period, beginning with the tax year in respect of which the option under sub-rule (1) was exercised and ending with the tax year immediately preceding the relevant tax year, shall be taxable during the tax year immediately preceding the relevant tax year, and tax shall be paid on or before the due date of filing the return of income for the relevant tax year.
(5) Subject to the provisions of sub-rule (4), once the option is exercised for a specified account or accounts in respect of a tax year under sub-rule (1) in Form No. 40, it shall apply to all subsequent tax years and cannot be subsequently withdrawn for the tax year for which the option was exercised or any subsequent tax year.
(6) For this rule,—
(a) “notified country”, “specified account” and “specified person” shall have the meaning assigned to them in section 158(2) of the Act;
(b) “relevant tax year” shall mean the tax year during which the specified person becomes non-resident subsequent to the tax year in respect of which option under sub-rule (1) has been exercised.
