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  Why you must verify your income tax returns

You must file income tax return if you hold any foreign assets
October, 04th 2021

Individuals who have taxable income below the basic exemption limit still need to file their income tax return (ITR) if they hold or earn an income from a foreign asset. Such incomes need to be reported under schedule FA in ITR-2 or ITR-3, as applicable to the taxpayer.

This rule may impact senior citizens who do not have taxable income but may be beneficiaries in assets bought outside India by their family members.Who should report foreign income? “The first condition to meet is that you should be a tax resident and ordinarily resident (ROR) in India," said Archit Gupta, founder and chief executive officer, ClearTax. You are an ROR if you have lived in India for at least two out of 10 previous years or for at least 730 days in the preceding seven years.

The next step is to determine if you are a beneficial owner, beneficiary or legal owner of a foreign asset.

“Beneficial owner in respect of an asset means an individual has directly or indirectly provided consideration for the asset and where such asset is held for immediate or future benefit of the individual," said Karan Batra, founder, charteredclub.com. “Beneficiary is a person who derives an immediate income or will get a benefit in the future from the asset even if he or she has not directly or indirectly paid for that asset."

What qualifies as foreign assets? Assets under this category include foreign deposit account, custodian account, immovable property, cash value insurance contract or annuity contract and capital assets equity and debt interest and any other income derived from a foreign source.

“If a friend or a relative living outside India deposits a sum in a bank account that you hold in that or any other foreign country, it will qualify as income from a foreign source. However, if the remittance is sent to your bank account in India, it will qualify as income from other sources or gift, as may be the case," explained Gupta.

Batra said if income from a foreign asset you hold is not received in India, it would still need to be reported.

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