Schedule FA (Foreign Assets) Disclosure in ITR

In today’s time, people are increasingly diversifying their portfolios with foreign investments to capitalize on global opportunities and mitigate risks associated with regional market fluctuations. If Indian residents hold foreign assets or have foreign income undisclosed in their Income tax returns, it could lead to tax evasion and obscurity of accounts. In order to combat this the government has made it mandatory for Indian residents via Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to report such holdings in Schedule FA (Foreign Assets) while filing income tax returns.

Applicability of Schedule FA

This schedule is mandatory for Resident and ordinarily resident individuals who are holding assets outside India.

In the case of Non-resident and Resident but not ordinarily resident persons schedule FA is not applicable.

Note: If an individual is holding foreign assets but does not have any other income, they are still required to file the income tax return by disclosing such foreign assets holding.

Foreign Assets that are required to be declared

The resident assessee must declare the following foreign assets in Schedule FA:

• Any property or investments held outside India, such as shares, bonds, life insurance, real estate, or other valuable assets.
• Incomes received from sources outside India, like dividends, interest, or capital gains.
• Authorization to sign in any account situated outside India, be it a bank, custodian, depository, or trading account.
• Ownership or any financial stake in a foreign entity, like being a partner in an overseas business or benefiting from a foreign private trust.

If the taxpayer has any beneficial interest in any of the above-mentioned assets, it is also mandatory to report it in their income tax return. Here, a beneficial owner is an individual who has directly or indirectly paid for the asset. Additionally, if the asset is held for the immediate or future benefit of the person who provided the payment or for someone else, they are also considered a beneficial owner.

It is to be noted that all the holdings and incomes should be reported in INR in schedule FA.

Relevant period for Reporting

Taxpayers need to report their foreign asset holdings for the relevant calendar year, which runs from January 1st to December 31st.

For instance, if a taxpayer is filing their return for the Financial Year 2022-23, they must report holdings as on December 31st, 2022.

How to disclose Foreign Assets in ITR

In schedule FA, there are 10 tables in which you must declare your foreign assets and incomes.

Conversion into INR

The reporting in Schedule FA needs to be in INR only, so while reporting we need to convert foreign currency into INR using below mentioned conversion rate:

Let’s understand this with an example.

Shreya, a resident individual, is an employee at Amazon Inc. She exercised ESOPs on two occasions: September 16, 2022 (valued at INR 484) and February 25, 2023. However, she only needs to report the ESOPs which are exercised in September 2022 in the income tax return of FY 2022-23 due to the calendar year period.

Additionally, during the period of January 2022 to December 2022, the ESOPs reached their peak value at INR 493. And the closing value as of December 31, 2022, was INR 346. So now, she need to report these under Table A3 of Schedule FA while filing her income tax return. This ensures compliance with tax regulations.

Tax on Income from Foreign Assets

It is important to understand that holding foreign assets does not incur any tax liability. However, any income generated from these assets is subject to taxation.

If you sell your foreign assets, you will need to pay capital gains tax. On the other hand, if you receive any other income such as interest or dividends from these assets, it will fall under the head Income from Other Sources. Similarly, if you receive rent income from foreign assets, it will be taxable under the head Income from House Property.

Make sure to report all such incomes under Schedule FSI in your income tax return to avoid any penalties.

Penalty for Non-disclosure of Foreign Assets

According to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, if a taxpayer doesn’t report or gives incorrect information about their foreign assets, they may have to pay a penalty of INR 10 lakhs at the discretion of the Assessing Officer (AO). Moreover, they could be liable for imprisonment of a minimum of 6 months, which could go up to 7 years, in addition to fines.

Note: The penalty of INR 10 lakhs is for each year of non-disclosure, i.e. if a taxpayer has not disclosed foreign assets for 3 years then they could be liable for a penalty of INR 30 lakhs.

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