Income Tax Department Enhances Monitoring of Undisclosed Foreign Income and Assets

This article explores the reporting requirements, disclosure guidelines, penalties for non-compliance, and the opportunity for taxpayers to revise past returns.

Understanding CRS and FATCA

CRS is an initiative by the Organisation for Economic Cooperation and Development (OECD) that mandates financial institutions to report information about accounts held by foreign residents. This information is shared with the tax authorities of the account holders' countries of residence.

FATCA is a United States law that requires foreign financial institutions to report assets held by US taxpayers to the US Internal Revenue Service (IRS). India participates in both CRS and FATCA, enabling it to receive annual data on foreign accounts held by Indian residents.

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India receives the following details under these agreements:

• Name, address, and Tax Identification Number (TIN) of the account holder
• Account number, balance, and income details such as interest, dividends, and other proceeds

Mandatory Disclosure Under Indian Tax Laws

As per the Income Tax Act, 1961, Indian residents are required to report foreign income and assets through specific ITR schedules:

1. Schedule FA (Foreign Assets):

Mandatory for residents, this schedule requires reporting of:

• Foreign depository and custodian accounts
• Equity and debt interests
• Insurance and annuity contracts
• Immovable property, other capital assets, and accounts with signing authority
• Trusts and any other income from foreign sources
• Disclosure must include peak balances, income accrued, and the amount taxable in India. Ownership status (legal, beneficial, or both) must be specified.

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2. Schedule FSI (Foreign Source Income):

Report all foreign-sourced income, including:

• Country details using ISD codes
• Taxpayer Identification Number (TIN) or passport number
• Head under which the income is reported in the ITR
• Article of the DTAA invoked for claiming relief, if applicable

3. Schedule TR (Tax Relief):

Summarizes tax relief claimed for foreign taxes paid:

• Requires the country code, TIN, tax paid, and relief claimed
• Must specify whether the relief is under Section 90, 90A, or 91 of the Income Tax Act

Note: To claim tax credit, you must also submit Form 67.

Read More: Filing ITR with Foreign Assets? Here’s How to Complete FSI, TR, and FA Schedules Step-by-Step

Key Terms Defined for Schedule FA:

Beneficial Owner: An individual who provided consideration for an asset held for their own or someone else's benefit.

Beneficiary: An individual who benefits from an asset provided by someone else.

All foreign assets in which the taxpayer is a legal owner, beneficial owner, or beneficiary must be disclosed.

Exchange Rate for Valuation:

All amounts must be converted into Indian currency using the telegraphic transfer buying rate as on the date of:

• Peak balance
• Investment
• Year-end (31st December 2023 for AY 2024-25)

This rate is defined by the State Bank of India as per RBI guidelines.

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Opportunity to File Revised Returns

Taxpayers who have omitted disclosures of foreign income or assets in their original ITRs can correct them by filing a revised return. For the assessment year 2024-25, the due date for revised returns is 15 January 2025.

By filing a revised return, taxpayers can:

• Make complete and accurate disclosures
• Avoid penalties and legal consequences
• Claim any eligible tax relief under Indian tax laws or DTAA

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Failure to disclose foreign assets or income can result in severe penalties and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The penalties may include:

• A penalty of ₹10 lakh for each undisclosed foreign asset
• Prosecution leading to imprisonment of up to 7 years
• Disallowance of tax relief or credit for foreign taxes paid

Read More: Filing ITRs? 5 Common Income Tax Portal issues This Assessment Year

Benefits of Accurate Disclosure

1. Legal Security: Avoid penalties and safeguard against legal action
2. Tax Relief: Claim relief for taxes paid abroad and avoid double taxation
3. Good Governance: Maintain trust with tax authorities
4. National Contribution: Ensure tax revenues are available for public infrastructure and welfare

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Conclusion

The Income Tax Department is now more focused on tracking foreign income and assets using global information-sharing systems like CRS and FATCA. If you are an Indian resident with income or assets outside India, it is important to report them correctly in your tax return.

Filing accurate details helps you avoid penalties, claim tax relief, and stay legally safe. If you missed anything earlier, you still have time to fix it by filing a revised return before 15 January 2025. Being honest and transparent with your taxes supports not just your peace of mind, but also the country’s growth.

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