A Surge in Voluntary Foreign Asset Declarations in India

In 2024, Income Tax officials reported that 30,161 taxpayers declared foreign assets valued at Rs 29,208 crores, along with additional foreign income of Rs 1,089.88 crores. This marks a considerable rise in voluntary foreign asset disclosures, increasing from 60,000 in Assessment Year (AY) 2021-22 to 2,31,452 in AY 2024-25. This growth is significant, reflecting a 45.17% increase from the previous assessment year, as indicated by government sources to Business Today.

International Collaboration for Financial Transparency

In September 2024, India received substantial financial information from more than 108 countries under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) agreements. The Central Board of Direct Taxes (CBDT) actively engaged with 19,501 taxpayers via SMS and emails, alongside conducting 30 outreach sessions that saw participation from over 8,500 individuals throughout the year.

By the end of 2024, 24,678 taxpayers reviewed their Income Tax Returns (ITRs), with 5,483 filing belated returns and 6,734 updating their residential status to properly declare their foreign assets. The Income Tax Department alerted taxpayers to voluntarily disclose any previously unreported foreign assets or income by December 31, 2024, warning that non-compliance could lead to severe penalties, including fines of up to Rs 10 lakh or imprisonment in certain situations.

Government’s Stance on Foreign Asset Disclosure

The Income Tax Department has reiterated that India receives detailed information about its residents’ financial accounts held in foreign jurisdictions, rendering attempts to hide wealth abroad ineffective. The exchange of information regarding Indian individuals with foreign assets or income operates under an international framework, facilitated by CRS and FATCA.

CRS, an initiative by the Organization for Economic Cooperation and Development (OECD), mandates financial institutions to report information on financial accounts held by foreign residents to their respective tax jurisdictions. This data is exchanged annually among jurisdictions. Similarly, FATCA, implemented by the United States, requires foreign financial institutions to report information regarding accounts held by U.S. taxpayers to the Internal Revenue Service (IRS).

Guidelines for Declaring Foreign Assets

Schedule FA
The Income Tax Department urges taxpayers to be proactive in reporting any foreign assets or income by disclosing them in Schedule FA (Foreign Assets) in the ITR form and in Schedule FSI (Foreign Source Income). Additionally, taxpayers may claim Tax Relief on taxes paid abroad by filing Schedule TR (Tax Relief). Non-disclosure of foreign assets and income can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Filing ITR-U
Taxpayers misreporting foreign income or assets face considerable challenges, especially given the existing data access of tax authorities. It is advisable to address these discrepancies promptly by submitting a revised or belated Income Tax Return (ITR) or an updated ITR-U. However, not all individuals are eligible to make corrections via ITR-U. If the deadline for ITR filing, revised ITR, or belated ITR has passed for prior financial years, only an ITR-U can be filed to rectify under-reported or unreported income, but new disclosures must be accomplished through the standard ITR or revised ITR.

Black Money Act
Experts note that individuals wishing to voluntarily disclose foreign income or assets but unable to do so via revised ITR, belated ITR, or ITR-U may utilize the Black Money Act. This legislation allows taxpayers to disclose undisclosed foreign assets and income, potentially minimizing penalties and the risk of prosecution. It’s crucial to disclose proactively before the tax department identifies non-compliance through enforcement measures or international data-sharing protocols like FATCA and CRS.

Conclusion

As India strengthens its framework for foreign asset disclosure, taxpayers must be aware of their obligations and the consequences of non-compliance. With the increasing scrutiny on foreign assets, taking prompt action to disclose these assets can prevent significant penalties and potential legal issues in the future.