Reporting Foreign Assets in Your Income Tax Return
According to Section 139 of the Income Tax Act, 1961 (ITA), individuals must file an income tax return if they own any asset outside India, including financial interests in foreign entities, or if they have signing authority in an overseas account or are beneficiaries of foreign assets. Even if the taxpayer’s income is below Rs 2.5 lakh, the minimum not chargeable to tax, they must file ITR 2 or ITR 3, as applicable, instead of ITR 1.
Preventing Tax Evasion
To prevent tax evasion through offshore routes, Schedule FA was introduced in the income tax return for AY 2012-13. It requires the disclosure of details of foreign assets and income, such as foreign depository and custodial accounts, foreign equity and debt interest, and immovable property situated outside India. Residents need to disclose these details, while non-residents, including residents who are not ordinarily resident (RNOR), are exempt. All specified details of foreign assets and income must be disclosed in Schedule FA, along with references to the relevant schedule in the ITR where the taxable income is declared.
ITR Filing for AY 2024-25
Unlike the ITR information, which pertains to the period between April and March, details of foreign assets must be furnished calendar year-wise, from January to December. When converting foreign assets or income into Indian currency, the “telegraphic transfer buying rate” must be used, as adopted by the State Bank of India for buying such currency received through a telegraphic transfer.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, imposes a penalty of ₹10 lakh for failure to disclose or for furnishing inaccurate particulars of foreign assets or incomes in the return. The exception is for a foreign bank account with a balance less than ₹5 lakh during the year.
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. ~Neetu Brahma, Partner at Nangia Andersen India~