Income Tax Returns: The enactment of the Black Money law has introduced severe penalties for taxpayers who provide insufficient disclosures regarding their foreign incomes, assets and related information. The non-compliance now constitutes a violation of both income tax and black money regulations, resulting in dual legal consequences for individuals who fail to report their foreign income and assets within the stipulated timeframes.
Many taxpayers remain uncertain about the mandatory reporting requirements for foreign assets and income. To address this uncertainty, the income tax department issued a brochure on December 11, 2024, clarifying which taxpayers must submit schedule foreign assets (FA) and additional documentation in their ITR by December 31, 2024, if not previously completed.
“In my experience, I found many salaried classes taxpayers land in trouble unwittingly by not disclosing their foreign bank account opened during their on-site assignment abroad or shares received as ESOP during their employment with multinational companies. Non-disclosure of foreign accounts by resident taxpayers in the relevant schedule of ITR can trigger initiation of penalty by the tax Department. Release of this e-brochure by the Income Tax Department goes a long way in creating awareness among taxpayers of their mandatory disclosure obligations beyond returning correct income,” Ramakrishnan Srinivasan, former chief commissioner of Income Tax was quoted as saying by ET.
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The Income Tax Department has published a comprehensive guide addressing common queries regarding foreign assets and income declarations. Here’s what you need to know:
Who should disclose foreign assets/income?
All Indian residents with overseas income or assets are required to make declarations. The definition of residency encompasses individuals who have stayed in India for 182 days or more in any previous year, or those who have spent 365 days or more across four preceding years plus 60 days in the previous year.
The guidelines specify that Hindu Undivided Family, Firms, or Association of Persons are considered resident entities unless their management and control operate entirely outside India. Additionally, Indian companies or those with effective management based in India fall under this category.
What is the penalty for non-disclosure for foreign income and assets?
Failing to disclose foreign income and assets can trigger serious legal consequences.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 authorises initiation of assessment proceedings against defaulters.
A monetary penalty of Rs 10 lakh is applicable when the combined value of assets (excluding immovable property) surpasses twenty lakh rupees in these situations:
- Non-submission of income tax return by individuals holding foreign assets and income, as stipulated in section 42 of Black Money Act, 2015
- Failure to provide information or providing incorrect details about assets (including financial interests in entities) situated outside India in the income tax return, according to section 42 of the Black Money Act, 2015.
- Legal prosecution can be initiated under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
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What is defined as foreign income and assets?
Foreign assets encompass bank accounts, equity and debt interests, business investments, property holdings, capital assets and beneficial interests in overseas holdings. Income from foreign sources includes interest earnings, dividends, gross proceeds, redemption amounts and other related earnings.
How to disclose foreign income and assets?
Declarations must be submitted using appropriate ITR forms, excluding ITR-1 and ITR-4, based on individual circumstances. It’s important to note that ITR-1 and ITR-4 do not contain Schedule FA, Schedule FSI, and Schedule TR sections.
Disclosure must be made in the Income Tax Return for the Assessment Year when the taxpayer holds resident status in India during the previous year.
The applicable return of income should be submitted before the specified due date according to section 139(9) of Income Tax Act, 1961.
Location for Foreign Asset Disclosure in ITR
* Schedule FA is for furnishing details of foreign assets and income from any source outside India.
* Schedule FSI is for furnishing details of Income from outside India and tax relief.
* Schedule TR is for providing details of summary of tax relief claimed for taxes paid outside India.
Gather comprehensive information about foreign assets, including asset type, country location, address details, acquisition date, and generated income. Compile information about all foreign income sources, including income type, earned amounts, country of origin, and taxes paid internationally. Input the required information in appropriate Schedules by following the detailed instructions available on income tax.gov.in. If eligible under Double Tax Avoidance Agreement, submit form 67 alongside Schedule TR to claim tax benefits.