Foreign income or asset to be disclosed before 31st December 2025| Government may get information from other countries

The Indian government is making all efforts to ensure that all foreign income and assets of the residents are disclosed in the Income Tax return itself. Now, many taxpayers have disclosed their foreign income and assets. However,  there is still a gap on the part of various taxpayers who have failed to disclose their foreign assets or income. If you are one of those then the Income Tax Department has issued a special advisory to make such disclosure by 31st December to avoid adverse consequences.

1. Source of Information for the Government of India

• To enhance tax transparency and compliance across the globe, the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) frameworks are designed to curb tax evasion.
• This platform ensures that information is shared among tax officials worldwide to increase transparency.
• CRS requires financial institutions to report information about financial accounts held by foreign residents to their respective tax jurisdictions. This information is then exchanged with other jurisdictions annually. 
• Similarly, FATCA, enacted by the United States, mandates foreign financial institutions to report accounts held by U.S. taxpayers to the IRS.

Read Also: Government Notified New Foreign Exchange (Compounding Proceedings) Rules, 2024

2. Nature of Information received by the Indian Government

Under CRS and FATCA, the Government of India received the following detailed information about the accounts held by its residents in foreign countries:

1. Account holder’s name, address, and tax identification number (TIN)
2. Account number and balance 
3. Detail of Income such as interest, dividends, and other financial proceeds.

Through this information, the government can identify the Indian residents and whether such person has made corresponding disclosure in his ITR or not.

3. Disclosure of Foreign Asset and Foreign Income in Income Tax Return

The taxpayer is required to disclose Foreign Asset and Foreign Income in Income Tax return under the following clauses:

a. Schedule FSI: Details of income earned outside India and Tax Relief

• Details of income earned outside India and corresponding tax deducted are furnished in Schedule FSI of Income Tax Return.
• The taxpayer is required to furnish information under the following heads:
  • Head of Income, i.e., Salary, Income from House Property, Capital gain, etc.
  • Income from outside India included in Total Income;
  • Tax Paid outside India
  • Tax payable on such income under normal provisions in India 
  • Tax Relief available in India (lower tax paid outside India and tax payable on such income in India);
  • The relevant article of DTAA if relief is claimed under section 90 or 90A of the Income Tax Act 

b. Schedule TR: Summary of tax relief claimed for taxes paid outside India (available only in case of resident)

• Taxpayers are required to furnish country-wise details of taxes paid outside India. This clause applies only to the residents.
• The following information is required to be furnished in the Income Tax Return:
  • Country code
  • Taxpayer Identification Number
  • Total taxes paid outside India
  • Total tax relief available
  • Tax Relief Claimed under section
  • Total Tax relief available in respect of country where DTAA is applicable (section 90/90A)
  • Total Tax relief available in respect of country where DTAA is not applicable (section 91)

c. Schedule FA: Details of Foreign Assets and Income from any source outside India

• The taxpayer is required to furnish details of foreign assets held outside India (including any beneficial Interest) at any time during the calendar year ending as of 31st December under the following clauses:
  • Foreign Depository Accounts and custodial Accounts;
  • Foreign Equity and Debt Interest held in any entity;
  • Foreign Cash Value Insurance Contract or Annuity Contract;
  • Financial Interest in any Entity held;
  • Immovable Property;
  • Any other Capital Asset held;
  • Account(s) in which the taxpayer has signing authority and which has not been included in the above disclosures;
  • Details of trusts, created under the laws of a country outside India, in which the taxpayer is a trustee, beneficiary, or settlor
  • Details of any other income derived from any source outside India which is not included in,
    • Above mentioned clauses; and
    • income under the head business or profession

• Details of foreign assets held as of 31st December are to be furnished every year if such asset is held as of 31st December.

4. Consequences of Non-disclosure of Foreign Assets of Income

• If the taxpayer fails to furnish the information of foreign assets or Income in Income Tax return and as per information obtained by the Indian government, the taxpayer has such income or assets then the taxpayer may have to face stringent penalties and imprisonment in some cases as well.
• The Taxpayer can be prosecuted under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

5. Disclosure of foreign assets and foreign Income in Revised Income Tax Return or belated Income Tax return

• Ideally, the taxpayer is required to furnish details of foreign assets or foreign income in the Income Tax return filed till the due date of filing of the return of Income, i.e., 31st July 2024 or 31st October 2024 for FY 2023-24.
• However, if the taxpayer has failed to make such disclosure in ITR then he has the option to file the revised Income tax return.
• In the revised ITR, the taxpayer can make the necessary disclosure.
• Revised return is to be filed by 31st December 2024 for FY 2023-24.
• By filing a revised return the taxpayer can:
  • Ensure complete and accurate disclosure of all foreign assets and income;
  • Avoid penalties and legal consequences for non-disclosure;
  • Avail any eligible tax reliefs under the provisions of Indian tax laws and DTAA.

• If the taxpayer has failed to file ITR by the due date then he can file a belated return up to 31st December 2024.

6. ITR-U (Updated Return) is not always the solution

• What about the years when the due date of filing of belated or revised Income tax returns has already expired?
• The taxpayer has the option to file an updated Income Tax return in Form ITR-U.
• However, ITR-U is not always a solution to rectify the disclosure of foreign assets or Incomes.
• ITR-U can only be used to rectify under-reported or unreported income but not for making any new disclosures or corrections. New disclosures or corrections can only be made in the revised or belated ITR.
• ITR-U (Updated Return) is primarily for rectifying underreported or unreported income. However, the same can’t be used for correcting non-income-related disclosures, such as the failure to report foreign assets in Schedule FA.

7. Disclosure under the Black Money Act

• If the taxpayer has failed to disclose the foreign assets or income in the Original ITR, revised ITR, or updated ITR then he still has the option to disclose under the Black Money Act.
• The Black Money Act offers taxpayers the opportunity for voluntary disclosure of undisclosed foreign assets and income, which can reduce penalties and the risk of prosecution. 
• However, this option is available only if the taxpayer voluntarily comes forward before the tax department identifies the non-compliance via enforcement actions or international data-sharing mechanisms, such as FATCA and CRS.

Conclusion

The disclosure of foreign assets or foreign income is very crucial to avoid penalties and prosecution. Now when the Indian Government is getting complete information about foreign income and assets, the taxpayer is required to take corrective action to make sure necessary disclosure is made.