CBDT Introduces Rule 21AAA and FORM No. 10-EE for Taxation of Retirement Benefit Income in Notified Countries

The Central Board of Direct Taxes (CBDT) has issued Notification No. 24/2022-Income Tax dated April 4, 2022, notifying Income Tax Rule 21AAA and FORM No. 10-EE. These rules, forming the Income-tax (6th Amendment), Rules, 2022, provide a framework for the taxation of income from retirement benefit accounts maintained in notified countries.

Key Highlights:

1. Rule 21AAA Overview:

   • Applies to income accrued in specified accounts during the relevant previous year for assessment years starting from April 1, 2022.
   • Allows specified persons the option to include such income in their total income for the assessment year when taxed in the notified country upon withdrawal or redemption.

2. Exclusion Criteria:

   • If the option is exercised, the total income for the relevant previous year excludes:
     • Income previously included in total income with tax paid in earlier years.
     • Income not taxable in India due to non-resident status or application of the Double Taxation Avoidance Agreement.

3. Exercise of Option:

   • The option must be exercised for all specified accounts maintained by the specified person.
   • Once exercised, it applies to all subsequent previous years and cannot be withdrawn for the year it was exercised or any subsequent year.

4. Non-Resident Scenario:

   • If the specified person becomes a non-resident, the option is deemed not exercised.
   • Taxation of accrued income during the relevant period happens in the previous year immediately preceding the relevant previous year.

5. Form No. 10-EE:

   • The option is exercised using Form No. 10-EE.
   • Must be furnished electronically under digital signature or electronic verification code before the due date specified under section 139(1) of the Income-tax Act.

6. Data Security Measures:

   • The Principal Director-General of Income-tax (Systems) or Director-General of Income-tax (Systems) specifies procedures, formats, and standards for secure capture and transmission of data.
   • Responsible for implementing security, archival, and retrieval policies for Form No. 10-EE.

Explanation:

• Due Date: As per Explanation 2 to sub-section (1) of section 139 of the Income-tax Act.
• Notified Country, Specified Account, Specified Person: As defined in the Explanation to section 89A of the Income-tax Act.
• Relevant Previous Year: The year in which the specified person becomes non-resident after exercising the option in the previous year.

Conclusion: The introduction of Rule 21AAA and FORM No. 10-EE provides a structured approach for taxing income from retirement benefit accounts in notified countries. Specified persons can now make informed choices regarding the inclusion of such income in their total income, offering clarity and compliance measures for this specific taxation scenario