Tax Filing Alert: Risks of Not Disclosing Foreign Bank Accounts in ITR

Introduction

With the global movement of individuals for employment, deputation, education, and travel, it is not uncommon for residents of India to maintain bank accounts in foreign countries. While this practice is legal, the Indian tax laws mandate that such foreign bank accounts must be reported in the “Foreign Asset Schedule (FA)” when these individuals file their income tax returns in India if they hold the status of "resident" for the relevant assessment year, irrespective of the fact that there is no deposit of unaccounted money in such a foreign? bank account.

This article explores the serious repercussions under the Black Money Act for failing to disclose foreign bank accounts and assets in income tax returns.

Reporting Requirements

Individuals classified as residents, other than non-ordinary residents (NOR), under clause (6) of Section 6 of the Income-tax Act, 1961, are required to report any foreign assets, including foreign bank accounts, they hold. Such individuals are required to select the appropriate Income Tax Return (ITR) form and Foreign Asset Schedule (FA Schedule) to report these foreign assets and incomes.

Penalty for Non-Disclosure?

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (commonly known as the Black Money Act), imposes stringent penalties for non-disclosure of foreign assets, including foreign bank accounts.

Section 42: Failure to Furnish Return of Income

Under Section 42 of the Black Money Act, if a resident who is required to file an income tax return fails to do so and has held any foreign asset or derived any foreign income during the previous year, a penalty of INR 10 lakh may be levied. However:-

• This penalty does not apply to bank accounts with an aggregate balance not exceeding INR 5 lakh at any time during the previous year.
• The exchange rate for determining the value in rupees of the balance in a foreign account is the telegraphic transfer buying rate of the currency as adopted by the State Bank of India on the relevant date.

Section 43: Inaccurate or Incomplete Reporting

Section 43 of the Black Money Act deals with cases where the return of income is filed, but the? particulars of foreign assets or income are not disclosed. The penalties are equally severe; however, similar to Section 42, the penalty under Section 43 does not apply to bank accounts with an aggregate balance not exceeding INR 5 lakh during the previous year.

Implications and Compliance

The implications of non-disclosure are significant, both financially and legally. The hefty penalty of INR 10 lakh serves as a strong deterrent. Moreover, the Indian tax authorities have become increasingly vigilant in tracking and penalizing non-compliance, given the global emphasis on transparency and the exchange of information among nations.

Steps for Compliance

To avoid such penalties, residents with foreign bank accounts or assets should:

1. Identify Foreign Assets: Accurately identify and quantify all foreign assets (including bank accounts) and incomes.
2. Select Appropriate ITR Forms: Use the correct ITR forms that include the Foreign Asset Schedule.
3. Report : Ensure all foreign assets and incomes are reported in the FA Schedule of ITR.

Conclusion

The Black Money Act underscores the importance of transparency and accountability in financial disclosures. Non-disclosure of foreign bank accounts and assets by residents can lead to severe financial penalties, damaging both one's financial standing and legal record. As the tax return filing season approaches, it is imperative for residents to meticulously report their foreign assets and incomes, ensuring full compliance with Indian tax laws and avoiding the hefty penalties prescribed under the Black Money Act.