Form 40 is a newly prescribed compliance form under the updated Income Tax Act, 2025, that allows Indian residents to manage taxation on foreign retirement savings in a structured way.
It is suitable for residents of India who hold retirement benefit accounts in certain notified countries, such as the US, UK, Canada, and Australia, and want to avoid immediate taxation in India on income that has not yet been withdrawn or redeemed.
So, let’s understand what Form 40 is, what documents you need to defer tax liability in India, and much more.
What is Form 40?
Form 40 is particularly relevant for individuals who have worked abroad, contributed to retirement schemes such as 401(k) plans or similar pension plans, and later become residents of India. The intent is to prevent double taxation and mismatches in timing between countries.
This provides an option to defer taxation of income accruing in these foreign retirement accounts until the time of withdrawal or redemption abroad, rather than taxing it on an accrual basis each year in India.
Many retirement systems abroad tax income only at withdrawal, whereas, under normal rules, India may tax global income on an accrual basis once a person becomes resident. Form 40 aligns both systems by allowing deferral, provided the taxpayer opts in through proper disclosure.
Under the Income Tax Act, 1962, the relevant form was Form 10EE, used to exercise the option under Section 89A. Under the Income Tax Act 2025, the corresponding form has been renumbered as Form 40, which is now linked to Section 158.
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Form 40 is relevant for a “specified person,” meaning an individual who:
Opened a retirement benefit account in a notified foreign country, while being a resident of that foreign country, and a non-resident in India at that timeSubsequently became a resident of India
At present, notified countries include the US, UK, Canada, and Australia, where retirement systems such as 401(k) plans, IRAs, pension schemes, and similar accounts are commonly maintained.
The option to defer taxation under Form 40 is voluntary, but once exercised, it applies to all eligible retirement accounts held in notified countries.
How does the tax deferral mechanism work?
Without Form 40, India may tax income from foreign retirement accounts on an annual accrual basis once a person becomes a resident. This means even unrealised gains or yearly growth in such accounts could become taxable in India.
However, when Form 40 is opted for, taxation is deferred until the actual withdrawal or redemption of funds abroad. This ensures that tax is levied only when the income is actually received by the taxpayer.
This mechanism closely aligns Indian taxation with the treatment followed in many foreign jurisdictions, thereby reducing timing differences and potential double taxation.
How does the filing work?
Form 40 must be filed electronically through the Income Tax e-filing portal. The form requires authentication through either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC).
The filing involves a detailed disclosure of all foreign retirement accounts covered under the option. The taxpayer must make a self-declaration confirming that the option is being exercised for all eligible accounts.
A key aspect of this compliance is consistency. Once exercised, the option applies to the relevant tax year and continues for subsequent years, and it cannot be withdrawn for that year.
Form 40 must be submitted on or before the due date of filing the income tax return. Failure to file within the prescribed timeline generally results in denial of the tax deferral benefit for that year, leading to taxation on an accrual basis.
Information and documents required
Form 40 is documentation-heavy because it deals with foreign retirement assets. Taxpayers are expected to provide the following documents.
Taxpayer’s foreign retirement account details, such as account number, opening date, and year-end balanceName of the retirement fund and the country in which it is maintainedAccount statements issued by the foreign financial institutionDetails of how the income is taxed in the foreign countryCopies of statutory provisions or supporting documents from the foreign jurisdictionDetails of income already reported in earlier Indian tax returns, if anyComputation of income across relevant tax yearsReconciliation between foreign account income and Indian income tax filingsRestrictions and conditions
Form 40 comes with strict compliance conditions. Once the option is exercised, it applies uniformly to all eligible accounts in notified countries and cannot be selectively applied.
The option, once chosen, continues for the relevant tax year and subsequent years, creating long-term consistency in tax treatment.
It is also important to note that incorrect or incomplete disclosure may result in denial of the deferral benefit, leading to taxation on an accrual basis.
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Form 40 plays a significant role in tax planning for individuals who have returned to India after working abroad.
By allowing taxation only at the time of withdrawal, Form 40 ensures that individuals are not taxed in India on income they have not actually received.
At the same time, it serves as a compliance safeguard, ensuring that foreign retirement income is properly disclosed and reconciled with Indian tax filings. However, the decision to opt for Form 40 is important because it has long-term implications and reduces flexibility in future years.
Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.