Schedule FA - Disclosure of Foreign Assets in ITR

What is Schedule FA (Foreign Assets) in ITR?

Schedule Foreign Assets (FA) is a part of the ITR form wherein you are required to report your foreign assets such as foreign shares, foreign company mutual funds, etc.)

In other words, all the foreign assets held by you, either legally, as a beneficiary, or as a beneficial owner, should be disclosed while filing the ITR-2 or ITR-3, as appropriate.

As per the Income Tax Act of 1961, residents and ordinarily resident Indians should report their foreign income, assets, accounts, and shares in the FA schedule in ITR in a given format, regardless of whether the income is taxable in India or not. This schedule helps curb tax evasion through offshore routes.

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Why is Schedule FA Important?

Schedule FA is important due to the following reasons -

• Disclosure of Foreign Assets - It lets taxpayers disclose any foreign assets they own, like bank accounts, stocks, properties, mutual funds, and other financial instruments. This disclosure helps the Income Tax Department maintain a proper record of the global financial holdings of the resident.
• Prevents Black Money - It helps combat black money cases like Panama paper leaks. It discourages the hiding of foreign assets and sets out a clear penalty for non-reporting of foreign assets.
• Helps Avoid Double Taxation - By revealing your foreign assets, you can ensure that the income generated from them is properly taxed. Moreover, you can also claim relief under the Double Taxation Avoidance Agreement (DTAA) with other countries, which prevents you from paying tax twice on the same income.

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Who is Required to Report Foreign Assets?

The reporting requirement of foreign assets in Schedule FA is a crucial aspect for residents, individuals, and HUFs (Hindu Undivided Families) who are classified as residents and ordinarily resident (R&OR). This requirement ensures transparency in international financial interests and helps maintain tax compliance. Let's break down the relevant provisions and exceptions:

Who Should Disclose Foreign Assets

• Residents and Ordinarily Residents (R&OR)
• HUFs (Hindu Undivided Families)

The requirement to report foreign assets in ITR is applicable if you have any of the following assets -

• Foreign Assets
• Financial interest or stake in a company located abroad
• You are a signing authority in an account maintained in a foreign country.

Beneficial Ownership - Beneficial ownership refers to the situation where you derive benefits from the assets held by someone else. Beneficial owners are also required to report foreign assets in ITR. Here are the exceptions -

• Beneficiary with Included income - If you are a beneficiary of a foreign asset and the income from it is already taxed in the return of the legal owner, you might be exempt from filing your own return.
• Foreign Citizens with Specific Visas - Foreign citizens who are classified as R&OR but hold business visas, employment, or student visas might be exempt from disclosing foreign assets acquired when they were non-residents and are currently not earning any income from such assets.

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Relevant period for disclosure

Taxpayers are required to disclose any foreign assets or income pertaining to the calendar year when filing their Income Tax Return (ITR) forms for the particular assessment. This entails individuals reporting details of any foreign assets held and income earned during the period from January 1, 2023, to December 31, 2023, in Schedule FA while submitting their ITR for the Assessment Year 2024-25. It is essential to ensure accurate and comprehensive reporting to comply with tax regulations and avoid potential penalties or legal consequences. Therefore, taxpayers should diligently gather all relevant information regarding their foreign assets and income for the specified period to facilitate smooth and compliant tax filing.

Rate of Exchange for Conversion

Currency conversion costs are typically 1% of the transaction price. It is assessed by the ATM network or credit card processing company and is often added to the foreign transaction fee that you pay.

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Disclosure requirements under Schedule FA

Disclosure of foreign assets in ITR is mandatory in the schedule FA of ITR, if you hold any of the below foreign assets.

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Key Information Required for Reporting Foreign Assets

You need to furnish the following details for each foreign asset or foreign account held while filling the schedule FA of the Income Tax Act, 1961 -

• Country name and code
• The name of the foreign entity
• Address and zip code of the foreign entity
• Account number of the foreign repository
• Status of the account and the account opening date or the date of acquisition of the asset
• Initial value of the investment
• The highest value of the investment during the accounting period.
• The closing value of the investment on the last date of the accounting period.
• The value of gross interest credited in the asset account during the accounting year.
• The amount received during the sale or redemption of an investment during the accounting period.

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How to File Schedule FA in ITR?

If you hold a foreign asset and are filing your income tax return, you need to follow the below-mentioned steps -

• Step 1. Identify the Asset Category - The first step is to identify the category of the foreign asset you hold. You have to select the relevant foreign asset and its code from the drop-down menu while filing the ITR.
• Step 2. Provide Asset Details - In the next step, you need to provide basic details of the foreign asset, like its name, address, zip code, country code, and currency code.
• Step 3. Provide Details of Investment Values - Now, you need to provide the initial value of the investment, the opening balance, highest balance during the relevant accounting period, and closing balance at the end of the accounting year in both the foreign currency and INR.
• Step 4. Report Income and Procceeds - You must also provide the details of the income or revenue earned during the accounting period, both in foreign currency and Indian rupees. It also includes the revenue or proceeds from the sale or redemption of assets during the financial year.
• Step 5. Claim DTAA Relief - Details of relief claimed under DTAA for income from foreign assets, if any.

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Consequences of Non-disclosure of Foreign Assets

If you fail to report the details of your foreign assets or furnish inaccurate information, you might face severe penalties. Following are the penalties for non-disclosure or misrepresentation of foreign assets in schedule FA in ITR.

• You might have to pay a penalty of INR 10 lakhs for every year that you fail to disclose your foreign assets.
• Any non-reporting of foreign assets while filing the ITR is considered a willful evasion of tax, and you might have to face imprisonment of up to 7 years.
• Non-declaration also revokes your right to claim relief under the Double Taxation Avoidance Agreement for your foreign income.

Preventing tax evasion is crucial, but optimizing tax planning can have a significant positive impact on your personal finances. Therefore, it's prudent not to overlook the opportunity to leverage Double Taxation Avoidance Agreements (DTAA) to maximize your tax savings. By strategically utilizing DTAA provisions, you can ensure that you minimize tax liabilities while remaining fully compliant with relevant regulations. This approach not only safeguards against potential legal issues but also allows you to allocate more resources toward achieving your financial goals.

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How to declare foreign shares In ITR?

When it comes to disclosing foreign investments and stocks for tax purposes, there are specific guidelines to follow in India. These investments should be reported in Table A3 under schedule FA in your ITR, and the values of these assets should be declared in Indian rupees after converting them from foreign currency.

However, reporting dividends can be a bit complicated. Dividends should be declared as income from other sources in the year they are paid, and the assessee must pay the applicable tax on dividends. Dividends are taxable in the year they are earned, regardless of whether they are remitted to India or not. In cases where tax has already been withheld in the foreign country before the dividend is paid, you can claim this tax as a deduction while filing your Income-tax Return in India to avoid double taxation.

For taxpayers who hold foreign assets, the income tax return form requires disclosure of assets held at any time during the calendar year. For instance, if you are filing an Income Tax Return for the assessment year 2023-24, you must disclose all the foreign assets you held from 1st January 2022 to 31st December 2022, as most countries follow the calendar year for assessment, unlike India, where the financial year beginning from 1st April to 31st March. i.e., if you have purchased foreign stocks in March 2022, they still need to be declared in Schedule FA in FY23.

Irrespective of the slab rate applicable, you must file an ITR if you hold any foreign asset at any time in the financial year.

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