The Govt. with a view to Enhance Tax Transparency on foreign assets & Income has issued advisory on the IT portal encouraging tax payers to report their foreign assets and Foreign Income.
This advisory is especially beneficial and directed towards the assessees who have failed to report their foreign assets in their ITRs or those who are yet to file belated ITRs.
Q. Who is required to disclose foreign assets?
A. The income Tax Act, requires residents to disclose their foreign assets and income from foreign sources in their Income Tax Returns. This means only assessees with residential status as resident (including ordinarily resident) are required to disclose foreign assets and foreign income.
Q. What are foreign assets?
A. Foreign assets are the assets that a resident may have outside India. Some of the foreign assets that need to be reported in the ITR are:
- Financial accounts (bank accounts) held by residents in foreign jurisdictions including accounts in which the assessee has signing authority
- Financial Interest in any entity outside India (Equity or Debt Interest in any entity)
- Foreign Depository Accounts or Foreign Custodial Accounts
- Immovable Property (Land & Building) Outside India
- Cash & Equivalents Outside India
- Loans and advances given outside India
- Investments held outside including shares, mutual funds etc.
- Investments in business entities outside India
- Any other assets held outside India
- Details of Foreign Cash Value Insurance Contract or Annuity Contract held (including any beneficial interest) at any time during the calendar year
- Details of trusts, created under the laws of a country outside India, in which you are a trustee, beneficiary or settlor
The tax payer has to report if he has any of the above assets outside India in his income tax return under Schedule – FA in the ITR form.
Q. Whether any other details are to be reported in the ITR by Indian residents in respect of foreign assets?
A. The Taxpayer also needs to declare any income from foreign sources in Schedule FSI (Foreign Source Income) in the ITR. This includes income in respect of the above-mentioned foreign assets also.
Q. For what period are the foreign assets to be reported?
A. The reporting requirement in r/o of foreign assets is with respect to the calendar year and not financial year. Therefore, foreign assets held at any time during the calendar year are to be declared in the ITR.
For example: Assets held at any time during the calendar year 2023 i.e till December’2023 are to be reported in the ITR for FY 2023-24/ AY 2024-25.
Q. What if I have not reported the foreign assets in the ITR or haven’t filed the ITR yet and I have foreign assets?
A. If you have already filed the ITR for AY 2024-25 and have not reported foreign assets then you need to revise your ITR and show the details of foreign assets under Schedule FA of the ITR. In case, you miss the deadline for filing ITR, I suggest to file updated ITR with details of and income accrued on such foreign assets.
Also, remember that section 139 of the income tax Act mandates those who have foreign assets to file the ITR in India even if they do not have any income in India or from such assets or even their total income is less than the maximum amount not chargeable to tax except in case where the person is the beneficiary of the assets and the income from such assets is already disclosed in the ITR of the legal or beneficial owner.
This means that filing of information under Schedule FA is mandatory if an Indian resident hold assets in any country outside India during the calendar year relevant to the previous year for which ITR is to be filed.
Q. What information is required to be disclosed in the ITR in respect of the foreign assets?
A. Information such as:
- Name of the country in which the taxpayer holds foreign assets
- Name and address of the financial institution like bank in which you hold foreign assets like bank accounts
- Account number
- Peak balance and closing balance in the account
- Whether owner/beneficial owner or beneficiary in the account
- Account opening date
- In case of interest or investment in any entity abroad, the details of the entity like name, address, nature of interest, date of acquiring interest, Initial value/cost of investment and peak value of investment is needed.
- In case of immovable property, country name/Address of the property, date of acquisition of the property, Total investment and income derived from the property will be needed.
- In case of trust created under the laws of a country outside India, the name of the trust, name of the country, address of the trust. The name and addresses of the trustees, beneficiaries and the settlor would be needed and income derived from the trust will be needed.
Q. What are the consequences of non-disclosure of foreign assets in the ITR?
A. If a person does not disclose foreign assets and income from foreign assets in his ITR, then he may face various penalties under the Income Tax Act Also Failure to disclose foreign assets and income can attract stringent penalties and prosecutions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
- The taxpayer may have to pay a penalty of INR 10 lakhs for every year that he fails to disclose the foreign assets.
- Any non-reporting of foreign assets/income while filing the ITR is considered a wilful evasion of tax, and can result in imprisonment of up to 7 years.
Q. How is the income in respect of the foreign assets reported?
A. As discussed earlier, The Taxpayer needs to declare any income from foreign sources in Schedule FSI (Foreign Source Income) in the ITR. This includes income in respect of the above-mentioned foreign assets also.
The taxpayer can get credit of the Tax paid on income from foreign sources in foreign country in his ITR in India by reporting the tax paid in schedule TR i.e Tax relief.
The tax payer can get relief of the tax paid outside India only on the doubly taxed income and if the tax paid outside India is less than or equal to the tax payable in India.
Also, the provisions of DTAA are to be considered in determining the tax relief i.e credit of tax paid outside India.
Q. How does DTAA and other provisions help the Govt. in receiving information about foreign assets of Indian residents?
A. With the help of double taxation avoidance agreements (DTAA) along with Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). India receives detailed information about financial accounts held by its residents in foreign jurisdictions. This includes:
- Account holder’s name, address, and tax identification number (TIN)
- Account number and balance
- Income details such as interest, dividends, and other financial proceeds.
This information helps the Income Tax Department to know global income of its resident taxpayers and to identify taxpayers who may not have disclosed their foreign assets and income.
Therefore, if you still haven’t reported your foreign assets or missed reporting the same. Then do so urgently by filing an ITR or an updated ITR.
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(The author is a Chartered Accountant and can be contacted at info@youronlinefilings.in or capratikanand@gmail.com or Mobile: +91-9953199493)
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