Disclose your foreign assets and income in ITR or pay a hefty penalty

Clarity on relevant accounting period has been provided this year: it is January 1 to December 31, 2021

Resident Indians holding foreign stocks and bonds must mandatorily disclose their holdings in their income-tax returns (ITR). They must report their interest in a foreign entity held at any time during the relevant accounting period if they are either the beneficial owner or the beneficiary.

Archit Gupta, chief executive officer (CEO), Clear says, “The details must be furnished in Schedule FA of the ITR form by taxpayers having Resident but Ordinarily Resident (ROR) status.”

The rules clearly define the terms beneficial to the owner and the beneficiary. Maneet Pal Singh, partner, I.P. Pasricha & Co says, “A beneficial owner means an individual who has provided, directly or indirectly, the consideration for the asset from which benefit has been derived. The beneficiary, on the other hand, is a person who has not paid for the asset’s purchase but has derived benefit from it.”

The schedule is divided into various parts, based on the nature of foreign assets (FA) and foreign income. Gupta says, “The details that must be provided include name of the country where the asset is held, peak balance in the account during the reporting period, closing balance, the gross amount credited to the account, total investment or financial interest in any entity, nature of income, etc.”

Details of a trust created outside India in which the assessee is a trustee, beneficiary, or settlor must also be provided.

Definition of accounting period

Until last year, the interpretation of the term ‘relevant accounting period’ was not clear. Suresh Surana, founder, RSM India says, “In the ITR forms notified for assessment year (AY) 2022-2023, this dilemma has been removed by replacing the term ‘calendar year’ with ‘relevant accounting period’. An individual must furnish details of all foreign assets held at any time between January 1, 2021, and December 31, 2021, in the return to be filed for AY 2022-23.”
 

Report foreign assets in Schedule AL?

Schedule AL (assets-liabilities) in ITR forms 2 and 3 requires individuals or Hindu Undivided Families (HUF) to report the value of their assets and liabilities (both in India and in a foreign jurisdiction) if their total income exceeds Rs 50 lakh.

Schedule FA requires reporting only of assets held outside India. Sameer Jain, managing partner, PSL Advocates & Solicitors, says, “Reporting in Schedule FA is mandatory for a taxpayer who is a resident in India who owns or benefits from any foreign assets. There is a slight overlap in the reporting requirements of the two schedules. However, as both schedules serve separate purposes, details of foreign assets should be reported in Schedule AL even if they have been declared in Schedule FA.”

Points to note

Give details of foreign companies’ shares or units of foreign mutual funds. Gupta says, “Report these assets even if they were acquired through an intermediary. Cryptocurrencies stored in foreign crypto wallets or foreign companies’ shares allotted through the exercise of employee stock options must be reported.”

Double taxation avoidance

The Indian government has entered into Double Taxation Avoidance Agreement (DTAA) and Tax Information Exchange Agreement (TIEA) with various foreign countries.

The Indian government has also signed an Inter-Governmental Agreement (IGA) on the Foreign Account Tax Compliance Act (FATCA) with the United States. These agreements allow the Indian tax authorities to get information about taxpayers from foreign jurisdictions.

Naveen Wadhwa, deputy general manager, Taxmann, says, “Provide complete and accurate information in the ITR. If you don’t furnish the details or furnish inaccurate particulars in Schedule FA, a penalty of Rs 10 lakh under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 may be imposed.”

Disclosures in Schedule FA are not mandatory for non-residents and Not Ordinarily Resident individuals. Expats and Indian citizens who qualify as RORs must report.

Jain says, “Any omission or inaccurate particulars may invite additional tax at a flat rate of 30 per cent, a penalty up to three times the tax, and prosecution under the Black Money Act, 2015.”

Comprehensive disclosure list

• Foreign depository accounts
• Foreign custodial accounts
• Foreign equity and debt interest
• Financial interest in any entity
• Foreign cash value, insurance contract or annuity contract
• Immovable property outside India
• Any other capital asset outside India
• Accounts in which the taxpayer is the signing authority
• Any other capital asset held outside India or income derived from a foreign source

Source: Clear