Disclosure of Foreign Assets & Income in Income tax Return
An Overlooked Element- Disclosure of Foreign Assets & Foreign Income in Income Tax Return
An often overlooked element in the income tax return filing process is the “Schedule-FA,” which involves the disclosure of foreign assets and foreign income. This schedule requires details of foreign accounts held, foreign equity or debt interest, financial interests, signatory authorities in foreign bank accounts, capital assets, trusts, or any other income derived from sources outside India. Understanding who is required to report these foreign assets and the potential consequences of non-compliance is crucial for ensuring accurate and complete tax filings.
Who is required to Report Foreign Assets/ Income?
1. Schedule FA Filing Requirement-
i. All Residents
ii. All Individuals and HUF who are Residents & Ordinarily Residents (R&OR).
2. As per fourth Proviso to Section 139(1)-
i. Residents holding overseas assets as beneficial owners, or as signing authorities on accounts located abroad.
ii. Beneficiaries of assets located outside India.
3. As per Fifth proviso to Section 139(1)-
i. The mandatory ITR filing requirement would not apply to an individual being a beneficiary of any assets (including any financial interest in any entity) located outside India, where income if any arising from such assets is includible in the income of the beneficial owner or legal owner.
Key Points of Consideration-
1. NRI and Residents who are not ordinarily resident (RNOR) are exempt from reporting.
2. All the specified details of Foreign Assets & Income must be disclosed in Schedule FA, along with reference to relevant schedule in ITR, where such taxable income is declared.
3. Details of foreign Assets must be furnished Calander year wise (As most countries follow Calander year unlike India which follows financial year).
4. Therefore, in ongoing ITR filings for AY 2024-25, details pertaining Jan’23 to Dec’23 need to be disclosed.
5. Corresponding disclosure in Schedule AL (Asset Liability, applicable where total income exceeds Rs. 50 Lacs) is also mandatory even if such assets are disclosed in Schedule FA.
6. Assets in the name of Minor Children need also to be disclosed, and the relevant income shall also be clubbed with parents.
Cost of Non-Compliance-
1. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, a penalty is provided for failure by a resident taxpayer to furnish or furnishing inaccurate particulars of foreign assets or foreign incomes in the return of income. The penalty is ₹10 lakh, and the only exception is for a foreign bank account whose balance was less than equivalent of ₹5 lakh during the year. The CBDT, in a circular issued in 2015, had clarified that non-disclosure in Schedule FA (Foreign Assets Schedule) of the tax return, of a foreign asset acquired out of disclosed income, would attract the penalty.
2. Revocation of DTAA Claim- Failure to declare foreign Assets revokes your right to claim Double Taxation Avoidance Agreement (DTAA) Benefit.
DTAA Benefits can be claimed in three modes-
1. Deduction: Taxpayers can claim the taxes paid to foreign government as a deduction in the country of residence.
2. Exemption: Tax relief under this method can be claimed in any one of the two countries.
3. Tax Credits: Tax relief under this method can be claimed in the country of residence.
Details required in Schedule- FA of ITR:
| Table | Description |
| A1 | Details of Foreign Depositary Accounts |
| A2 | Details of Foreign Custodial Accounts |
| A3 | Details of Foreign Equity and Debt Interest |
| A4 | Details of Immovable Property (Land and Building) Situated Outside India |
| A5 | Details of Cash and Equivalent Outside India |
| A6 | Details of Loans and Advance Given Outside India |
| A7 | Details of Unquoted Equity Shares Held Outside India |
| A8 | Details of Investment in Business Outside India |
| A9 | Details of any other Foreign Asset or Financial Interest |
| A10 | Details of Income from Foreign Assets |
Conclusion: The disclosure of foreign assets and income in the income tax return is a critical requirement for residents and ordinarily residents of India. Failing to report these assets accurately can result in significant penalties under the Black Money Act and the loss of the right to claim benefits under the Double Taxation Avoidance Agreement (DTAA). By understanding the requirements and ensuring thorough compliance, taxpayers can avoid the pitfalls of non-disclosure and ensure their tax obligations are fully met. Proper reporting not only aligns with legal mandates but also contributes to a transparent and fair taxation system.
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