Form 40 Explained: A Master Guide

As an Indian resident, if you hold a retirement account in countries such as the US, the UK, Canada, or Australia, you may need to understand Form 40 under the Income Tax Act, 2025. The Form 40 itself is now under the Income Tax Act 2025. However, the tax relief that is associated with it is not a new benefit.

The Form 40 replaces Form 10EE, which was previously used to exercise a similar option under Section 89A of the Income-tax Act, 1961. This relief continues to be available under Section 158 of the Income Tax Act, 2025, read with Rule 74 of the Income Tax Rules, 2026.

The provisions are focused on addressing the tax timing mismatch that can happen when an individual becomes a tax resident of India while continuing to hold the retirement savings in certain foreign countries.

In this blog, we will cover everything about Form 40 and how Indian with US 401(k), UK Pension, and Canadian retirement accounts can opt to defer tax in India under the Income Tax Act, 2025.

Why Was This Provision Introduced?

Many NRIs, or individuals who return after working abroad, continue to maintain their foreign retirement accounts. These accounts continue to earn income from the underlying investments abroad even after the account holder has become a resident taxpayer in India.

Now the pain point is that, in countries such as the US, UK, and Canada, the tax income from corporate revenue is generally assessed when the money is withdrawn. On the other hand, India may treat such income as it accrues.

This unusual difference in the timing of taxation can create practical difficulties for taxpayers.

With respect to the CA professionals in the taxation industry, "Form 40 allows eligible taxpayers to defer taxation in India until the year in which the amounts are withdrawn from retirement accounts. This aligns with the timing of taxation in India and the tax treatment applicable in the foreign country, and can help address issues arising from different tax rules across jurisdictions."

Who Is Likely To Be Affected By The Provision?

The provisions apply only to individuals who have worked overseas and continue to maintain their retirement benefit accounts abroad after becoming residents of India.

These may include retirement arrangements such as US 401(k) plans, IRAs, pension schemes in the United Kingdom, and eligible retirement savings plans in Canada, subject to conditions prescribed by law.

The tax relief is available to a specific person who is a resident in India and maintains a retirement benefit account in a notified country, provided the account was opened while the individual was a resident in that country (abroad) and the non-resident in India.

Not A New Relief, But A Continuation Of An Existing Framework

While Form 40 has been introduced under the new tax legislation, the underlying policy objection generally remains largely unchanged.

Mr. Sandeep Bhalla, who is also the Partner at Dhruva Advisors, states that "Section 158 of the Income Tax Act 2025 substantially continues the framework that exists under Section 89A of the Income Tax Act, 1961. The regulation was originally introduced to address cross-border timing differences in the taxation of retirement benefits and continues to serve the same purpose for people.

According to him, without such a provisional mechanism, annual accretions to the foreign retirement account would be taxed in India on an accrual basis, even though the foreign jurisdiction may tax the same income only when withdrawals are made. By aligning the timing of taxation, the provisions also facilitate the operation of the foreign tax credit mechanism in certain appropriate cases.

How Does This Option Help The Taxpayer

Retirement accounts often generate investment income for years after an individual returns to India.

Mr. Mahest Nayak, a member of the BCAS Managing Committee, says that "this can create a timing mismatch and become some countries' tax on the accumulated income only at the time of withdrawal, whereas an Indian may otherwise seek to tax the income in the year it is earned with the account."

With respect to him, the option available under Indian tax laws allows an eligible taxpayer to defer the taxation of such income until withdrawal, thereby delaying the mismatch and facilitating a foreign tax credit claim, where applicable.

Filing Form 40 Is Mandatory To Claim The Relief

The benefit is not available automatically. For a person seeking to exercise the option, Section 158 requires that the person file Form 40 electronically on or before the applicable due date for filing the income tax return.

Form 40 requires all details of the specific retirement account you maintain in the notified country, along with supporting documents relating to the account and its tax treatment in the overseas jurisdictions.

The annexures prescribed in the account statements, evidence regarding the taxation of the account in the foreign country, and the details of income that may have already been offered to tax in India in earlier years.

Can The Option Be Withdrawn Later?

As per the conditions prescribed, you do not have the option to withdraw later. Once the option is exercised for the tax year, it cannot be withdrawn for that year. The option continues to apply in the subsequent years in accordance with the provision governing the relief.

What is The Time Limit For Filing Form 40?

Form 40 for the exercise of an option to claim tax relief under section 158 of the Income Tax Act 2025 must be filed electronically on or before such date. The due date for filing the income prescribed under section 263(1)(c) of the ITA 2025, as may apply for the specific person claiming the tax relief. This time limit is specified in the relevant rule.

What Documents Are Required To File Form 40?

The following is a list of documents or details you may need while filing Form 40.

• A specified Account or Foreign Retirement Account Details: Account number(s), Date of account opening, Account balance at the end of the previous tax year.
• Name of the retirement fund and the notified country.
• Despite the income already being taxed in India in the earlier years.
• Copy of the statement of the specified account having the above details.
• Documents showing how income from the specified accounts has been or will be taxed in the notified countries, including the relevant statutory provisions of those countries or any other relevant documents.
• Computation of income for all tax years in which income from the specific account has been deducted and included in the total income.
• A reconciliation statement of the computation of income with the return of the income for the said tax years.

What If The Specified Person Exercising The Option Does Not Have A PAN?

Form 40 cannot be submitted without a valid PAN for the specified person exercising the option to claim tax relief.

Can Form 40 Be Filed Offline?

No, the Form 40 can only be submitted online via the Income Tax e-filing portal.

The Form 40 does not create a new tax benefit for you. It replaces Form 10EE under the Income Tax Act 2025 and continues the relief available to eligible taxpayers for specified foreign retirement accounts.

The Bottom Line

Form 40 is not a new tax benefit; it is a continuation of a long-standing relief available under Section 89A of the Income Tax Act 1961 through Form 10EE. Under the new Income Tax Act 2025, this relief now operates under Section 158, read with Rule 74 of the Income Tax Rules, 2026, and must be claimed using the updated Form 40. For returning NRIs and Indian residents who continue to hold a foreign retirement account, such as a US 401(k) plan, an IRA, a UK pension scheme, or a Canadian retirement savings plan, this provision is a critical planning tool. It helps prevent the unfair situation of being taxed in India on income that has not yet been taxed in other countries, ensuring that the timing aligns with taxation across jurisdictions.

However, a key thing to remember is that the option must be filed electronically before your ITR due date, it cannot be withdrawn once exercised for that year, and a valid PAN is mandatory. Filing Form 40 with complete documentation is the only way to access this relief; it is never granted automatically.

So, if you hold a foreign retirement account and have now become a tax resident of India, consulting a qualified tax professional familiar with cross-border taxation is strongly recommended to ensure your Form 40 is filed correctly and on time.

Savetaxs serves its clients 24/7 across all the time zones, get in touch with us today and manage your overseas retirement accounts in compliance.