Foreign Asset Reporting - ZX Accotax Solution-IN

Reporting of Foreign Assets/Income under Schedule FA in Income tax return

Obligation to file the Income-tax return (ITR) before due date in prescribed form with appropriate information is the primary responsibility of tax payer. In case of ITR-2 and ITR-3, reporting of certain information under Schedule FA is something non-routine and tough exercise adding complexities of return filing. In order to capture the details of assets such as investments, stocks, mutual funds, and other financial instruments held by Indian residents outside India, Schedule FA was introduced from assessment year 2013-14 as an integral part of Income Tax Return Form. The enactment of the Black Money Act, 2015, reinforced the obligation for Indian residents to disclose such foreign assets and income. Introduction of Schedule FA as an integral part of Income tax return aims to prevent tax evasion and money laundering as well as ensures transparency in international financial interest and helps to maintain tax compliance. Further, data collected through this mechanism helps government for further analysis under various circumstances.

1. Background

Indian residents who are not required to file income tax returns must do so if they have any of the following during the fiscal year.

Many foreign asset holders neglect this key declaration and compliance requirement when filling ITR in India.

2. Foreign Assets Reporting

3. Who are required to disclose Foreign Assets?

The persons who are residents of India are required to disclose foreign assets in Income Tax Return.

When filing ITR, use ITR 2 and ITR 3 based on your tax profile to fill Schedule FA (FA stands for ‘Foreign Assets’). If you are using ZX to file Self Service ITR, refer How to report FA in ITR?

NOTE on NRI, RNOR Status : Non Residents and RNOR (Resident but not ordinarily residents) are not required to report their Foreign assets in Indian Income Tax Return.

Schedule FA vs Schedule AL Schedule AL (Reporting Assets & Liabilities) is applicable to the Individuals/HUF whose Net Total income exceeds Rs 50,00,000 during the financial year. Which is different from Schedule FA In Summary,

Schedule AL and Schedule FA are used in two different contexts.
Schedule FA to be used when a resident having foreign assets.
Schedule AL to be used when a taxpayer having net taxable income exceeds Rs. 50 Lakhs.

Mandatory Disclosure while filing ITR?

In addition to Foreign Assets, Indian (Domestic) Assets, you may want to refer to mandatory disclosure by asset class

4. What are the Foreign Assets to be reported?

The following are the foreign assets required to be reported in Schedule Foreign Assets

Foreign Depository Accounts (Like Bank Accounts, Term Deposits in foreign banks etc)
Foreign Custodial Accounts
Foreign Equity and Debt interest(Like Shares, Mutual Funds, RSU, ESOP, ESPP etc)
Foreign Cash value insurance contract or annuity contract (Like Life Insurance and others)
Financial interest in any entity (Companies, Partnerships, LLP’s outside India)
Immovable property (House, Buildings, Land etc)
Any other capital asset (jewellery, Vehicles, Paintings etc)
Accounts of Signing Authorities
Trusts created in the foreign country
Other income from Foreign sources

5. Information required for reporting Foreign Assets

The taxpayers are required to report the following information in Schedule Foreign Assets

A. For Foreign Depository Accounts, Foreign Custodial Accounts and Signing Authorities

Name of the Country and Code of Country
Name of the Financial Institution
Address of Financial Institution
Zip Code
Account Number
Date of Opening the Account
Peak Balance during the period
Closing Balance
Gross amount paid or credited to the account (interest/dividend etc)

B. Foreign Equity and Debt interest and Financial interest in any entity

Name of the Country and Code of Country
Name of the entity
Nature of the entity
Address of the entity and Zip Code
Date of Acquiring the Interest
Initial Value of the investment
Peak balance of Investment during the period
Closing value
Total gross amount paid/credited with respect to the holding during the period (Dividends, Interest)
Total gross proceeds from sale or redemption of investment during the period

C. Foreign Cash value insurance contract or annuity contract (Like Life Insurance and others)

Name of the Country and Code of Country
Name of Financial Institution in which insurance contract held
Address of Financial institution and Zip Code
Date of Contract
Cash or Surrender Value of Contract
Total gross amount paid/credited with respect to the holding during the period.

D. Immovable property (House, Buildings, Land etc)

Name of the Country and Code of Country
Address of the Property and Zip Code
Date of Acquisition
Total Investment (At Cost)
Income derived from property
Nature of Income (Rental income etc)
Amount of taxable income offered in Income tax return

E. Any other capital asset (jewellery, Vehicles, Paintings etc)

Name of the Country and Code of Country
Zip Code
Nature of the Asset
Date of Acquisition
Total Investment (At Cost)
Income derived from Asset
Nature of Income
interest taxable offered in Income tax return

6. Value at which foreign assets needs to be reported (Conversion to INR)

The following rates needs to be used to convert the foreign assets into INR

Peak Balance — The Telegraphic Transfer Buying rate (TTBR) needs to be used on the date of peak balance.
Value of Investment — The Telegraphic Transfer Buying rate (TTBR) needs to be used on the date of investment.
Closing Balance — The Telegraphic Transfer Buying rate (TTBR) needs to be used on the Closing date.

7. Period of Reporting

Table A to F of Schedule FA requires reporting of foreign assets or income pertaining to the calendar year ending December 31 Consequently, taxpayer should disclose under Schedule FA details of any foreign assets held and income earned during the period from January 1 to December 31, whereas period of return of Income in India is April 1 to March 31. This may lead to disparity in disclosed information/income in Schedule FA and reported information/income in ITR. As such there is not legal consequences of such mismatch in reporting considering the objective of induction of Schedule FA provided income for the relevant assessment year should be properly taxed.

All in all, one should ensure accurate and comprehensive reporting to comply with tax regulations and avoid potential penalties or legal consequences.

8. Consequences of Non-Disclosure of Foreign Assets or Mis-reporting of Foreign Assets

Income tax act does not levy any specific penalty for non-reporting or in accurate reporting of foreign assets or income in Schedule FA however penalty is levied under Black Money Act 2015

Section 42 and 43 of Black Money Act 2015 levies penalty of INR 10 Lacs for non-reporting or inaccurate reporting of particulars of foreign assets or foreign Income. No penalty shall be levied in case where assessee having one or more bank accounts located outside India has a sum of balance less the INR 5 Lacs at anytime during the previous year.

Further, imprisonment for a term exceeding 6 months but not more than 7 years with fine may be imposed under Section 49 and 50 Black Money Act 2015 if taxpayer wilfully fails to submit details of foreign assets. However, if assessee submits information before expiry of relevant assessment year, imprisonment should not be initiated.

Disclaimer: This blog is intended for educational purposes only and should not be interpreted as tax advice. It is recommended to seek guidance from a qualified professional for advice relevant to your circumstances. For any feedback, inquiries, or suggestions, please feel free to reach out to the us at info@zxaccotax.com / Contact No +91 90993 50344.