Mandatory Disclosure of Foreign Assets in Income Tax Returns: Penalty & Deadline

The global issue of black money and tax evasion through offshore accounts has been a significant concern for?tax authorities. To address this, the Indian government enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, commonly referred to as the Black Money Act. This legislation requires taxpayers to disclose foreign assets and income in their Income Tax Returns (ITRs), promoting transparency and preventing tax evasion in cross-border transactions.

With the final deadline of 31st December fast approaching for filing revised or belated ITRs, the Income Tax Department has intensified its campaign encouraging taxpayers to declare their foreign assets for Assessment Year (AY) 2025. Non-compliance may result in strict penalties, including a ?10 lakh fine and possible prosecution. Below is an in-depth guide to understanding the rules and implications of foreign asset disclosure in ITRs.

What are Foreign Assets?

Foreign assets, for Indian residents, encompass:

• Bank accounts in foreign countries.
• Investments in foreign real estate, stocks, mutual funds, or other assets.
• Financial interests in foreign businesses or entities.
• Signing authority over foreign accounts.
• Insurance policies or annuity contracts held overseas.

Why Disclose Foreign Assets in Your ITR?

The disclosure of foreign assets serves multiple purposes:

1. Legal Compliance

The Black Money Act, 2015, mandates reporting foreign assets and income in specific ITR schedules:

• Schedule FA: For declaring foreign bank accounts, investments, and other assets.
• Schedule FSI: For reporting foreign income like dividends, interest, or capital gains.

2. Avoiding Penalties

Failing to report foreign assets attracts a significant penalty of ?10 lakhs, underlining the need for accurate compliance.

3. Claiming Tax Relief

Proper reporting allows taxpayers to claim benefits under Double Taxation Avoidance Agreements (DTAA) and tax credits for foreign taxes paid by filling Schedule TR (Tax Relief).

4. Enhancing Transparency

Disclosure ensures accountability, aids the government in monitoring global income, and upholds taxpayer obligations.

Who Is Required to Report Foreign Assets?

Under the Income Tax Act, 1961, the following individuals must disclose foreign assets:

1. Resident Individuals and HUFs

• Those classified as “Resident and Ordinarily Resident” must report all foreign assets, including bank accounts, real estate, stocks, and other investments.

2. Beneficial Owners

• Individuals with beneficial ownership or signing authority over foreign accounts must disclose such details in their ITR.

3. Beneficiaries

• Taxpayers benefiting from foreign assets must declare them unless the income is already accounted for by the beneficial owner.

How to Report Foreign Assets in ITR

Foreign assets must be disclosed in Schedule FA of the ITR. Follow these steps:

1. Identify Assets: Classify foreign assets such as bank accounts, investments, or real estate.Provide Details: Include country name, currency code, institution details, account numbers, and other relevant information.Report Balances: Specify the initial value, opening balance, closing balance, and peak balance during the financial year in both foreign currency and INR.Declare Income: Report any income (interest, dividends, capital gains) in both foreign currency and INR.Maintain Records: Keep thorough documentation to validate the details provided.

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Key Deadlines for Foreign Asset Disclosure

The regular deadline for filing ITR, including foreign asset disclosures, is 31st July of the assessment year. If details are missed, taxpayers can rectify this by filing a revised or belated return by 31st December without incurring significant penalties.

Penalties for Non-Disclosure

Failing to disclose foreign assets can lead to:

• Penalty: A flat fine of ?10 lakhs under the Black Money Act.
• Prosecution: Severe non-compliance may result in legal proceedings.

Recent Case Highlight

In a noteworthy judgment, the Mumbai Income Tax Appellate Tribunal (ITAT) upheld penalties under Section 43 of the Black Money Act for failing to disclose foreign assets, even when income from these assets was reported. This underscores the importance of complete and accurate reporting.

Recent Case Laws and ITAT Decision

In a noteworthy judgment, the Mumbai Income Tax Appellate Tribunal (ITAT) upheld penalties under Section 43 of the Black Money Act for failing to disclose foreign assets, even when income from these assets was reported. This underscores the importance of complete and accurate reporting.

Missed Reporting for FY 2023-24?

If you failed to report foreign assets for FY 2023-24, file a revised return by 31st December 2024. Ensure all details are accurately filled in Schedule FA to avoid penalties or scrutiny.

Disclosing foreign assets and income in ITRs is not only a legal obligation under the Black Money Act but also essential for avoiding penalties, ensuring transparency, and claiming tax relief. Depending on your income source, use ITR-2 or ITR-3 for these disclosures. Given the complexities of international taxation, seeking?professional guidance?is advisable to ensure compliance and accuracy.

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