The Government of India, aiming to enhance transparency in reporting foreign assets and income, has issued an advisory on the Income Tax portal. Taxpayers are encouraged to report their foreign assets and income, especially those who have failed to disclose such information in their Income Tax Returns (ITRs) or are yet to file belated ITRs.
The Income Tax Act mandates that individuals with the status of “Resident” (including “Resident and Ordinarily Resident”) disclose their foreign assets and income from foreign sources in their ITRs. Non-residents and not-ordinarily residents are not subject to this requirement.
Foreign assets are assets held by a resident outside India. These include:
Financial Accounts:
Bank accounts in foreign jurisdictions, including those where the taxpayer has signing authority.
Depository and custodial accounts held outside India.
Investments:
Equity or debt interests in entities outside India.
Shares, mutual funds, and other investments held abroad.
Loans and advances given outside India.
Immovable Property:
Land or buildings located outside India.
Other Assets:
Cash and cash equivalents held abroad.
Foreign cash value insurance contracts or annuities.
Interests in trusts created under foreign laws, where the taxpayer is a trustee, beneficiary, or settlor.
These assets must be reported under Schedule FA (Foreign Assets) in the ITR form.
Residents must also declare:
Income from Foreign Sources: Details of income derived from foreign assets must be reported under Schedule FSI (Foreign Source Income).
Reporting Period: The disclosure is based on the calendar year, not the financial year. For example, assets held anytime during 2023 must be declared in the ITR for FY 2023-24 (AY 2024-25).
If ITR is Already Filed: File a revised ITR and include the details of foreign assets under Schedule FA.
If ITR is Not Filed Yet: File a belated or updated ITR with complete disclosure of foreign assets and income.
Mandatory Disclosure: Section 139 of the Income Tax Act mandates filing ITR for residents with foreign assets, even if they have no income in India, no income from these assets, or total income below the taxable threshold (except where the individual is a beneficiary and the asset’s income has been disclosed by the legal or beneficial owner).
Depending on the type of asset, the following details must be provided:
Bank Accounts:
Country name
Financial institution’s name and address
Account number
Peak balance and closing balance
Ownership type (owner, beneficial owner, or beneficiary)
Account opening date
Investments in Entities:
Entity name and address
Nature of interest
Date of acquisition
Initial investment value and peak value
Immovable Property:
Country name and property address
Acquisition date
Total investment
Income derived from the property
Trusts:
Trust name, country, and address
Names and addresses of trustees, beneficiaries, and settlors
Income derived from the trust
Failure to disclose foreign assets and income can result in:
Penalties: A penalty of INR 10 lakhs per year of non-disclosure.
Prosecution: Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, wilful tax evasion can lead to imprisonment of up to 7 years.
Income from foreign sources must be reported under Schedule FSI. Taxpayers can claim credit for taxes paid abroad on doubly taxed income by reporting it under Schedule TR (Tax Relief). Relief is available under:
Double Taxation Avoidance Agreements (DTAA)
Provisions of the Income Tax Act
Through DTAA, Common Reporting Standard (CRS), and the Foreign Account Tax Compliance Act (FATCA), India receives detailed information about financial accounts held by its residents abroad. Shared information includes:
Account holder’s name, address, and Tax Identification Number (TIN)
Account number and balance
Income details (e.g., interest, dividends)
This data enables the Income Tax Department to identify discrepancies and ensure compliance.
If you have foreign assets or income that remains undisclosed, promptly file or revise your ITR to avoid penalties and legal consequences. Transparency in declaring foreign income and assets is not just a legal obligation but a critical step in maintaining tax compliance.
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