Who has to report foreign assets in Indian income tax return and how to do it
August, 08th 2017
The requirement to report foreign assets in the Indian tax return was introduced from financial year 2011-12. The tax return form contains a schedule - "Schedule FA" for reporting such assets.
Applicability and relaxation The reporting requirement is applicable to individuals qualifying as Resident and Ordinary Residents (ROR) in India. Individuals who are Non Residents (NR) or Not Ordinarily Residents (NOR) in India are not required to report foreign assets.
Even where an ROR does not have any taxable income in India, a tax filing requirement arises if the individual has any assets outside of India.
There is an exemption from reporting foreign asset which was acquired while the foreign national was an NR in India and from which no income is earned during the financial year. The exemption is applicable only to employment, business or student visa holders.
The assets to be reported include foreign bank accounts, financial interest, immovable property, accounts in which individual has signing authority, trusts, any other capital asset held by the individual outside India.
The assets need to be reported irrespective of value and the values are to be reported in Indian Rupees. Jointly held assets are to be disclosed at their full value by each of the joint owners to whom the reporting requirement is applicable although income in in relation to such assets may be offered to tax based on the respective owner's share.
Apart from the value/ cost of assets, the income earned from the asset along with nature of income and head of income under which such income has been offered to tax in the return, needs to be reported in relation to each asset.
Bank accounts The reporting requirement for bank accounts include name and address of the bank, account number, name of the account holder, date of opening, peak balance during the year and interest earned. Peak balance refers to the maximum account balance during the year and not the balance at the end of the year.
Details need to be reported for each bank account separately even if there are multiple accounts held with the same bank.
Schedule FA also specifically requires reporting of details in relation to bank accounts where the individual has a signing authority. The schedule provides a separate table for the same.
Financial interest Financial interest refers to any direct/ indirect ownership of shares/ voting power in a corporation/ entity, partnership interest, mutual fund holdings, vested stock options etc. It also includes any investment accounts held with banks outside India.
In relation to financial interest, in addition to basic details such as name of entity, nature of interest, date of investment etc, the amount to be disclosed is the cost incurred to acquire such interest which are held on 31st March.
As with bank accounts, details for each investment and/ or investment account needs to be reported separately.
Immovable properties In relation to immovable properties, the details to be reported include address, nature of ownership (direct/ beneficial), date of acquisition, total investment at cost, income from the property and nature of income. Where the individual has inherited property without incurring any cost, such property needs to be reported at nil value.
Other reporting requirements The foreign asset reporting requirement extends to trusts outside India where the ROR is a trustee, a settlor or a beneficiary.
To cover any asset that does not fall under any of the above mentioned categories, there is also a residual category of "any other capital asset".
Importance While reporting requirements for foreign assets were initially introduced as mere disclosure, starting from financial year 2015-16 onwards, the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act (Black Money Act) provides for increased tax and penal consequences.
Under the Black Money Act, undisclosed foreign income and asset will be taxed at a flat rate of 30%. Further, there may be significant monetary penalties (up to 300% of the tax) along with the risk of criminal prosecution. Additionally, failure to furnish any information or furnishing inaccurate information in the return with respect to foreign income and foreign assets could also trigger a penalty of INR 10 lakhs.
Given the stringent penal consequences for not reporting or incorrect reporting, it is advisable to correctly report all foreign income and assets in the India tax return.
Reporting of Indian assets and liabilities In addition to the reporting of foreign assets, individuals whose taxable income is above INR 50 lakhs also need to provide details of the specified assets and corresponding liabilities in India under "Schedule AL".
It is important that individuals duly comply with the asset reporting requirement to avoid any questioning from the Indian Revenue Authorities at a later date.