NRI Returning Home? Defer Your Foreign 401k Tax

If you moved back to India from the US, UK, Canada, or Australia, you may have to pay Indian tax on your foreign retirement savings every year — unless you file Form 40 to defer that tax until you actually withdraw the money.

Here's what happened: Returning NRIs who become Indian tax residents must normally pay tax on foreign retirement account growth every year under accrual rules.. India's Income Tax Act allows eligible individuals to file Form 40 to defer this tax on foreign retirement accounts until the money is actually withdrawn.. This relief covers accounts like the US 401(k), UK pension pots, Canadian RRSPs, and Australian superannuation funds held before returning to India..

What you should do: Check your residential status: if you spent 182+ days in India in FY2024-25, you are now a tax resident and this rule applies to you.. File Form 40 with your Income Tax Return before the ITR deadline to claim deferral on your foreign retirement account — missing this filing means losing the benefit for that year.. Consult a CA or tax advisor experienced in DTAA (Double Tax Avoidance Agreements) to ensure you are not double-taxed by both India and your former country of residence..

Form 40 deferral only postpones the tax — it does not eliminate it. Plan your withdrawal timing carefully so you withdraw in a year when your total Indian income is lower, reducing your effective tax rate.