Schedule FSI and TR in Income Tax Return

Investors choose to diversify their investments globally. They are also benefitting from simplified regulations implemented by governments to facilitate investment in assets based on individual preferences. When investors sell these holdings, they must pay taxes in both their country of residence and country of origin. So, let us understand in detail in this article about the disclosure requirements for such foreign incomes.

What are Schedule FSI and TR

Schedule FSI (Foreign Source Income)

Resident Indians are liable to pay taxes on their global incomes. Hence, if an Indian resident person earns income from outside India from any sources then they are liable to pay taxes on all such incomes in India. Further, they are required to report the same under Schedule FSI while filing their income tax return in India. However, if they have incurred any losses outside India, then they do not have to report it under this schedule.

Schedule TR (Tax Relief)

When a resident Indian earns income from a foreign country they are liable to pay tax in that country as well as in India. This will result in double taxation as the same income is taxed twice in both countries. To avoid the same, India has entered into a double taxation avoidance agreement (DTAA) with various countries. According to this, there are two ways to claim relief from double taxation:

• Exemption method: As per this method, the income will be taxed in one country only.
• Tax credit: In this method, the income is taxed in both countries, and the taxpayer can claim the credit in their resident country.

India normally follows the tax credit method. Hence, if the resident of India has paid any taxes outside India then while filing a return in India they can claim the credit for the taxes paid. Further, they have to disclose such foreign tax credits claimed under schedule TR.

Note: The taxpayer needs to report the income earned and taxes paid outside India in INR. As per section 115, for conversion, they need to use the Telegraphic Transfer Buying Rate (TTBR) of the State Bank of India on the last day of the month before the month in which the income is due.

Who is liable to file Schedule FSI and TR

If a resident individual earns income from a foreign source, it is obligatory to report the details in Schedule FSI, regardless of whether they are claiming any credit for taxes paid outside India. Further, if a resident individual is claiming the credit of the taxes paid outside India then they are required to disclose the details of relief claimed in schedule TR.

Let’s understand this by an example:

Ms. Diya a resident of India, has earned dividend income from her foreign shareholdings in the USA. Further, she has also paid tax on the dividend received in the USA. However, as she is an Indian resident she has to report global income in her income tax return. Hence, she can claim the credit of tax paid in the USA by filing form 67 and needs to pay taxes on the same in India.

Now, while filing the return firstly she needs to file the schedule FSI. Under this schedule, she needs to enter the dividend received in INR in income from other sources head and also has to report the taxes paid outside India if any.

Further, once the reporting under Schedule FSI is done, if she had paid taxes outside India and claimed the credit of such, the details from the same will be auto-reflected under Schedule TR.

Relevant period for Reporting

Taxpayers need to report their foreign incomes for the relevant financial year, which runs from April 1st to March 31st.

For instance, if a taxpayer is filing their return for the Financial Year 2022-23, they must report the foreign incomes earned between 1st April 2022 to 31st March 2023.

Key points to keep in mind while filing these schedules

• The amount of income and taxes claimed should be correct and in accordance with Form 67 filed by the taxpayer.
• It is mandatory to disclose the foreign assets held in Schedule FA from which the income is generated.
• The taxpayer must accurately categorize earned incomes from various sources, including salaries, dividends (other source income), capital gains, etc.
• The taxpayer needs to correctly enter the relevant article number of DTAA if they are claiming the tax credit.

FAQ’s