It has been often observed that people hold certain Foreign Assets and the same gets missed out to be reported in the tax return due to lack of awareness, omission or inadvertent error.
As per the Income Tax Law, every person Resident in India, while filing his/her Tax Return is required to share details of the Foreign Assets in the Tax Return. This is irrespective of its value; no matter how small or big the value of asset is.
Some of the common examples of such Foreign Assets are:
- Employees working in MNC are allotted ESOPs or Shares of the Parent Entity
- A person temporarily deputed to work in a foreign country or a Student gone abroad for studies; often ends up opening a Bank Account there.
- Many returning Indians; continue to hold some property overseas including Bank Accounts
- Investment in Foreign Mutual Funds, Bonds or other Financial Instruments
- People invest in businesses overseas in a Company, LLP etc.
The law requires you to not only report Foreign Assets, but also any Income generated from any source outside India including from the assets held overseas. If any tax is withheld or tax is paid in a Foreign Country, credit for the same (‘Foreign Tax Credit or FTC’) is generally available, provided corresponding Income is offered to tax in the same year. For claiming Foreign Tax Credit, one is required to file Form No.67; along with various supporting documents such as TDS Certificate, Tax Paid receipt etc.
Automatic Exchange of Information (AEOI)
Some people may ask how on earth Income Tax Department will get information about overseas assets of 1.40 billion Indians? So, friends now a days, many countries across the Globe including India have entered into Agreements with each other; under which there is an Automatic Exchange of Information (AEOI). For e.g India shares Financial Information of Tax Residents of the USA; with the US Government and the USA in turn exchanges information about Indian Residents with the Government of India. The goal is to combat tax evasion, increase transparency, and ensure that taxpayers accurately report their foreign assets and income.
Financial institutions (such as banks, investment entities, and insurance companies) collect information about accounts held by non-resident individuals and entities. This information includes details like account holder’s name, address, taxpayer identification number, account balance, and income generated. The data is transmitted to the tax authority of the account holder’s country of residence, enabling authorities to verify if foreign income and assets have been properly disclosed for tax purpose. India is a signatory to the AEOI framework and has agreements with over 100 jurisdictions for receiving and with 79 for sending financial information.
Consequences of Non-Reporting:
If a resident taxpayer fails to disclose foreign assets or income in the Income Tax Return (ITR), a penalty of ₹10 lakh (INR 1 million) per year can be levied under the Black Money Act, provided the aggregate value of the foreign assets (excluding immovable property) exceeds ₹20 lakh.
Prosecution:
Non-disclosure can also lead to prosecution, with imprisonment ranging from 3 to 10 years, along with fines.
Additional Consequences:
Assessment proceedings may be initiated under both the Income Tax Act and the Black Money Act. Tax on undisclosed foreign income is charged at a flat rate of 30%, with no exemptions or deductions. Additional Penalty upto 300% of tax can also be levied. Non-disclosure revokes the right to claim relief under the Double Taxation Avoidance Agreement (DTAA) for the foreign income.
Summary:
Failing to report foreign assets or income as a resident of India can result into serious consequences and therefore tax payers should be very cautious and ensure that they share correct data with their tax consultant and the same gets reported in the Income Tax Return.
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Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal, tax, or financial advice. While efforts have been made to ensure accuracy, tax laws and regulations are subject to change and can vary based on individual circumstances. Readers are strongly advised to consult a qualified tax professional or advisor before making any decisions based on this information.
The readers can reach out to the Author on [email protected] for any questions or query.
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