I-T Department Targets Undeclared Foreign ESOPs and Assets
Overview
The Income Tax (I-T) Department has intensified its scrutiny by issuing notices to Indian residents for failing to declare income and assets held abroad. These include Employee Stock Options (ESOPs), foreign property, shares, and dividends. This initiative signifies a strong enforcement drive under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
Key Highlights of the Notice Drive
1. Notices Targeting MNC Employees
The I-T Department has particularly focused on individuals with foreign-based ESOPs. Many of these taxpayers are employees of multinational companies (MNCs) operating in India.
For instance, a Gujarat resident employed at an IT firm in Bengaluru was flagged for holding ESOPs issued by its American parent company.
2. Collaboration with Global Partners
The crackdown leverages international agreements to gather ownership data on foreign assets from countries like the USA and UAE.
Foreign assets under scrutiny include:
- Bank accounts
- Shares and dividends
- Real estate properties
3. Notice and Compliance Deadlines
Taxpayers receiving notices are required to revise their income tax returns (ITRs) by December 31, 2024. Non-compliance can result in penalties, reassessments, or even prosecution under the Black Money Act.
4. Specific Disclosures Required
Taxpayers must disclose:
- Foreign Depository and Custodial Accounts
- Equity/Debt Interests and Insurance Contracts
- Financial Interests and Immovable Property
- Signatory Rights for Foreign Accounts
- Roles in Overseas Trusts (trustee, settler, or beneficiary)
Penalties and Legal Consequences
1. Monetary Penalties
- A ₹10 lakh penalty for failing to disclose foreign income or assets in ITRs.
- If non-disclosure results in tax evasion, penalties of up to 200% of the evaded tax may apply.
2. Risk of Prosecution
Taxpayers failing to comply with disclosure requirements may face criminal proceedings under the Black Money Act, leading to severe financial and legal repercussions.
Expert Recommendations
To avoid penalties, tax professionals and organizations like the Gujarat Chamber of Commerce and Industry (GCCI) urge taxpayers to take prompt action. They recommend:
- Filing Revised ITRs: Declare all foreign assets and income before the deadline.
- Consulting Experts: Seek professional advice to comply with the Black Money Act and foreign asset reporting guidelines.
Next Steps for Taxpayers
1. Review Ownership of Foreign Assets
Carefully assess all ESOPs, foreign accounts, and overseas investments to identify undeclared income or property.
2. File a Revised Income Tax Return (ITR)
Ensure that all foreign assets and income are accurately reported in the revised tax return before the December 31, 2024, deadline.
3. Engage Tax Professionals
Professional guidance can simplify compliance with complex foreign asset reporting requirements, thereby reducing risks.
