Declaration of foreign assets: If foreign assets were not declared in the original Income Tax Return (ITR) filed for AY 2024-25, a revised return must be filed by December 31, 2024. Failure to do so could result in a penalty of up to Rs 10 lakh, according to a recent advisory from the Income-Tax Department. The department emphasised the importance of disclosing assets held abroad or income earned in foreign countries in order to comply with the anti-black money law.
To ensure compliance, the Income Tax department has launched a compliance-cum-awareness campaign urging taxpayers to report such information in their ITR for the assessment year 2024-25.
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What is a foreign asset?
The guidance outlined that (foreign) assets held abroad by a tax resident of India in the previous year may include bank accounts, cash value insurance contracts or annuity contracts, financial interests in entities or businesses, real estate, custodial accounts, equity and debt interests, trusts in which the individual is a trustee or beneficiary of the settlor, accounts with signing authority, and any other capital assets.
The I-T department emphasised that individuals meeting this criteria are required to complete the foreign asset (FA) or foreign source income (FSI) schedule in their Income Tax Return (ITR), even if their income falls below the taxable threshold or if the asset abroad was obtained from disclosed sources.
“The Income-tax Act, 1961 require residents and ordinarily residents to disclose their foreign assets and income in their Income Tax Returns (ITR). Specifically, Schedule FA (Foreign Assets) in the ITR form is meant for reporting foreign assets, and Schedule FSI (Foreign Source Income) is for reporting income from foreign sources. Additionally, taxpayers can claim tax relief on taxes paid abroad by filing Schedule TR (Tax Relief). It is pertinent to note that Schedule FA must be filled by every individual who is a resident and ordinarily resident in India and owns or has a beneficial interest in assets abroad or derives income from foreign sources during the relevant accounting period (i.e. a Calendar Year),” said CA (Dr.) Suresh Surana.
What happens if you fail to do so?
The advisory specified that Indian tax residents must include various types of assets when reporting their foreign holdings, such as bank accounts, insurance policies, annuities, stocks, real estate, investment accounts, and trusts where they serve as a trustee or beneficiary. These assets must be disclosed by taxpayers in the foreign asset (FA) or foreign source income (FSI) section of their income tax return (ITR), regardless of their income level or the origin of the foreign assets.
“Failure to disclose foreign assets and income can attract stringent penalties and prosecutions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Section 43 of the Black Money (Undisclosed Foreign Income & Assets) & Imposition of Tax Act 2015 imposes penalty of Rs. 10 lakhs for failure to furnish in the income tax return any information or for furnishing inaccurate relating to an asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such relevant year,” Surana added.
He further noted: “It is pertinent to note that penalty under this section shall not apply in respect of an asset, being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to Rs. 5,00,000 at any time during the relevant year. W.e.f. 1st October 2024, such penalty shall not apply in respect of an asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed Rs. 20 lakhs. Please note that this disclosure is to be made for the respective calendar year.”
Adhering to these regulations is essential for taxpayers to prevent legal repercussions. The Income Tax Department’s e-campaign is designed to remind taxpayers of their responsibility to disclose foreign assets and income as per CRS and FATCA requirements.
As part of this initiative, the CBDT will send informational messages and emails to taxpayers who have completed filing their ITR for the assessment year 2024-25. These communications will focus on individuals identified through bilateral and multilateral agreements, suggesting that they may have foreign accounts, assets, or income.
Suppose a taxpayer has failed to report foreign assets in their ITR for the assessment year 2024-25. In that case, it is recommended to file a revised return by December 31, 2024, to avoid penalties for non-disclosure of foreign assets in the future.
Belated tax returns
The belated tax return is submitted in accordance with Section 139(4) of the Income Tax Act, 1961. If an individual taxpayer who is not required to have their accounts audited fails to file their tax return for the fiscal year 2023-24 by the due date of July 31, 2024, they may file a belated return by December 31, 2024. However, filing a belated return will result in the imposition of interest under sections 234A and 234B on any unpaid tax liability and late fees. Should a taxpayer miss the deadline for filing a belated return as well, they may still submit an updated tax return.