Reporting Foreign Assets in ITR: Key Guidelines for Taxpayers
As of the 2024-25 assessment year, two lakh Income Tax Returns (ITRs) reporting foreign assets and income have been filed, highlighting the importance of accurate disclosure. To ensure compliance with Indian tax laws, the Central Board of Direct Taxes (CBDT) has initiated campaigns encouraging taxpayers to properly disclose Foreign Assets (FA) and Foreign Source Income (FSI).
Who Needs to Report Foreign Assets and Income?
1. Tax Residents of India
- Individuals who spent 182 days or more in India during the previous year or 365 days over the past four years.
- Includes taxpayers holding foreign assets even if those assets don’t generate income.
2. Employee Stock Options
- Shares acquired through overseas employers, including any related dividend or interest income, must be disclosed.
3. Other Foreign Assets
Taxpayers must report:
- Bank accounts, annuity contracts, and financial interests.
- Immovable property, custodial accounts, equity or debt interests, and trusts.
- Signing authority over foreign accounts or any foreign capital assets.
Choosing the Correct ITR Form
ITR-1 and ITR-4
These forms do not include schedules for FA and FSI.
- Taxpayers who filed these forms incorrectly must revise or file a belated return by December 31, 2024, to avoid penalties.
ITR-2 or ITR-3
These forms include schedules for FA and FSI.
- Taxpayers with foreign assets or income must use these forms to ensure compliance.
Steps for Compliance
1. Revise Incorrect ITRs
If FA and FSI details were omitted, file the correct form promptly.
2. Pay Applicable Taxes
Report and pay taxes on income earned from foreign assets, if not already done.
3. Claim Tax Relief
Leverage the Tax Relief schedule to avoid double taxation under the Double Taxation Avoidance Agreement (DTAA) or other withholding tax provisions.
Key Provisions Under the Anti-Black Money Act (2015)
The Anti-Black Money Act mandates severe penalties and prosecution for failing to disclose foreign assets or income. Compliance is crucial to avoid legal consequences.
Global Information Exchange
India receives data on taxpayers’ foreign assets and income through:
- CRS (Common Reporting Standard): Agreements with 123 countries.
- FATCA (Foreign Account Tax Compliance Act): Agreement with the US.
This information-sharing enables tracking of assets in tax havens like the British Virgin Islands, Malta, and Luxembourg.
Impact of the Campaign
The tax department’s measures, including email and SMS reminders, have driven a steady increase in foreign asset disclosures:
- 2021-22 AY: 60,000 filings.
- 2022-23 AY: 75,000 filings.
- 2023-24 AY: 1.6 lakh filings.
- 2024-25 AY: 2 lakh filings (to date).
Conclusion
Tax residents must promptly report foreign assets and income using the correct ITR form to avoid penalties. The government’s transparency drive, supported by international agreements, aims to enhance compliance and reduce tax evasion. For detailed filing instructions, visit the Income Tax Department’s e-filing portal.
