ITR: Reporting requirements of foreign assets in the income tax return

The residents Indians holding specified foreign assets shall comply with the reporting requirements in the Indian income tax return. The provisions of Section 139 prescribes specific criteria where the individual is required to file the ITR even if his income is below the basic exemption limit. One such criterion is, where the individual is a beneficial owner of any assets located outside India or has any foreign account, the individual must file the income tax return.

The income tax return contains a ‘Schedule FA’ for declaration of the foreign assets or accounts in respect of which you are a beneficiary or a beneficial owner. The taxpayer has to report the details in ITR-2 or ITR-3, whichever ITR form applies to him. 

Disclosure requirements under Schedule FA

The resident taxpayer (resident but ordinarily resident) has to mandatorily give all the information about the foreign assets, account, etc., in Schedule FA of the ITR form in a specified format. The details include peak balance during the accounting period, closing balance, nature of foreign income, etc.

The taxpayer shall provide the details for foreign assets or accounts held at any time during the relevant accounting period. The nature of foreign assets or accounts can be foreign depository accounts, foreign custodian accounts, foreign equity and debt interest, immovable property outside India, any other capital asset outside India, foreign cash value insurance contract, or an annuity contract any other income derived from a foreign source. It also includes the details of trust created outside India in which taxpayer is a beneficiary or settlor and financial interest in any entity outside India.

When to report?

Reporting of such foreign assets, accounts, etc., shall be made for the foreign assets or accounts acquired during the relevant accounting period of the foreign country.

For the return filing of FY 2020-21, the accounting period means the period comprising of –

1. 1st January 2020 to 31st December 2020 for foreign assets, accounts, etc., held in those jurisdictions where the calendar year is considered for the closing of accounts and return filings.
2. 1st April 2020 to 31st March 2021 for foreign assets, accounts, etc. held in those jurisdictions where the financial year is considered for the closing of accounts and return filings.
3. That period of 12 months, ending on any day succeeding 1st April 2020, in respect of foreign assets, accounts held in those jurisdictions where the other 12 months accounting or tax filing period is adopted.

For instance, assuming the resident individual acquires a foreign asset in September 2020 from the foreign country. And the said foreign country follows the calendar year for tax filing and closing of accounts. Then the resident individual will be required to report the same in the income tax return of the FY 2020-21. However, for the foreign assets acquired between January 2021 to March 2021, the taxpayer shall report in the income tax return of the FY 2021-22.

Rate of exchange for conversion

For conversion of the foreign asset or foreign-sourced income in Indian currency, the rate of exchange shall be “telegraphic transfer buying rate”, i.e. the rate of exchange adopted by the State Bank of India (SBI) for buying such currency where such currency is made available to the bank through a telegraphic transfer.

Other reporting requirements

Suppose the resident individuals hold the foreign assets during the financial year, i.e. as of 31st March 2021, in addition to Schedule FA. In that case, they must fill the asset-liability schedule, i.e. Schedule AL (if applicable).

The taxpayer must comply with the reporting requirements of the income tax law. Non reporting or underreporting of required details may result in penal consequences. Due to the technological improvements and increase in the tax and reporting compliances, the income tax department gets all the information for overseas transactions of the resident individuals.

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For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in