ITR Reporting for Joint Foreign Trading Accounts: Who Must Disclose & Why

How to Report Joint Foreign Trading Accounts: Beneficial Ownership Rules Explained; Beneficial Ownership Determines Disclosure for Joint Foreign Accounts, Not Joint Names; Foreign Trading Accounts in Joint Names: Correct Schedule FA and FSI Reporting Method; Correct ITR Reporting of Foreign Income, Capital Losses and ADRs for Joint Accounts; Joint Foreign Trading Account, Schedule FA & FSI – Practical Guide for Indian Residents for Reporting in ITR

1. Background – Joint Foreign Trading Accounts and Beneficial Ownership

Jointly held foreign trading accounts are increasingly common among Indian residents who invest in US markets and add a spouse as joint holder for convenience and succession. However, this raises important questions on who must disclose the asset in the ITR, how to use Schedule FA (A1 and A3) and how to report foreign income in Schedule FSI.

For income tax purposes, what really matters is not whose name appears on the account, but who is the beneficial owner. If one spouse funds 100% of the foreign account and is the only person enjoying dividends, interest and capital gains, then that spouse alone is treated as the beneficial owner. In that situation, all foreign income is taxable only in that spouse’s hands and must be reported in their ITR. The other spouse, whose name is added merely for operational or succession convenience, has no tax liability in the relevant year.

2. Schedule FA Reporting – A1 and A3

In Schedule FA, the funding spouse should report the foreign brokerage or depository account and the securities held through it. In A1, the taxpayer discloses the foreign depository or trading account: country (for example, USA), broker name, masked account number, peak balance during the year and closing balance at year end, selecting the status as owner or beneficial owner.

In A3, the same taxpayer reports the underlying foreign equity and debt interests: individual shares, bonds, ETFs, mutual funds and ADRs. For each security, country, peak value and closing value are reported. This is not duplication: A1 reports the existence and value of the account; A3 provides a security-wise drill-down of what sits inside that account.

3. Whether the Non-Funding Spouse Must Report

The non-funding spouse generally need not report these assets at all if they have no present beneficial interest in that year and are only a possible future beneficiary on death. Schedule FA is aimed at current legal or beneficial owners and current beneficiaries, not purely contingent successors.

4. Foreign Income and Losses in Schedule FSI

In Schedule FSI, foreign dividends and interest are reported under “Income from Other Sources”, while foreign capital gains are reported under the capital gains column. If there is positive foreign income under other sources but a capital loss, the loss cannot be entered as a negative figure in FSI. The correct approach is to show the positive income in the relevant head and leave the capital gains figure as zero, carrying the loss separately in Schedule CFL.

5. Interest, Dividends and ADR Country Selection

Finally, “gross interest credited” in A1 covers interest on cash balances and bond interest, not dividends. For ADRs such as a Japanese company’s ADR traded in the US, the country is usually taken as the country of listing and issue, i.e. USA.