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ITR Filing

Schedule FA - Disclosure of Foreign Assets in ITR

Updated on: 05 Apr, 2024 05:50 PM

We all have heard about the famous case of the Panama Paper leaks, where illegal properties worth more than 20,000 crores, held by over 500 Indians, were exposed. Schedule FA was introduced to prevent such tax evasion cases through offshore routes. Schedule FA makes it mandatory for all resident taxpayers (ordinarily resident) to declare their foreign assets in the ITR. Let us dive deeper and learn more about schedule FA, schedule FA in ITR, and how to file schedule FA in ITR.

What is Schedule FA (Foreign Assets)?

Schedule Foreign Assets (FA) is a schedule in the ITR wherein you are required to furnish the details of the foreign assets. such as foreign shares, foreign company mutual funds etc.) directly employee stock options (ESOPs) of foreign companies.

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 schedule FA in ITR in a given format, irrespective of whether the income is taxable in India or not. This schedule helps curb tax evasion through offshore routes.

Why is Schedule FA Important?

Schedule FA plays a crucial role in helping the Indian government prevent the evasion of taxes by making it mandatory to disclose the presence of any foreign assets under the schedule FA of ITR 2. It allows the government to track the assets held by Indian residents on foreign lands and also prevents any kind of money laundering.

In addition to the above, the resident can also avoid paying double tax on the same income by claiming relief under the DTAA (Double Taxation Avoidance Agreement). DTAA, or the double taxation avoidance agreement, is a type of agreement signed between two nations that ensures that the taxpayer does not have to pay taxes multiple times in different countries.

Who is Required to Report Foreign Assets?

As per the Income Tax law, the disclosure of foreign assets in ITR is mandatory for resident taxpayers who own specified foreign assets at any time during the entire accounting year. However, non-resident or resident but not ordinarily resident taxpayers do not have to disclose their foreign assets in ITR.

For this purpose, the accounting period followed by the foreign country for closing their accounts is considered to be the accounting period for reporting the assets.

Relevant period for disclosure

Taxpayers are required to disclose any foreign assets or income pertaining to the calendar year 2023 when filing their Income Tax Return (ITR) forms for the assessment year 2024-25. 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.

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.

Foreign Assets Examples
Foreign depository accounts Savings or term deposits in foreign banks
Immovable property outside India Houses or buildings owned in foreign companies
Any other capital asset outside India Assets like jewelry, vehicles, and paintings
Foreign bank accounts
Financial interests Voting power in foreign companies, partnerships in limited liability partnerships outside India.
Foreign accounts where you are an authorized signatory Accounts in which you have the signing authority or are the authorized signatory.
Foreign Custodian Accounts Custodial accounts for financial assets or deposits in foreign nations
Trusts outside India or any other foreign source of income. Trusts where you serve as a beneficiary, settlor, or trustee.
Foreign Securities Restricted stock units, Bonds, Mutual Funds, Exchange-traded funds (ETFs)

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.

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. 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. 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. Now you need to provide the initial value of the investment, 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. 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. Details of relief claimed under DTAA for income from foreign assets, if any.

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Consequences of Non-disclosure of Foreign Assets

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.

Moreover, stock, or any asset acquired between January 2023 and March 2023, will no longer be required to be disclosed in the current ITR filing.

Irrespective of the slab rate applicable, you must file an ITR if you hold any foreign asset at any time in the financial year. If you need assistance filing your tax return with foreign Income, our team of online CAs is your best bet to reduce your overall tax liabilities.

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Frequently Asked Questions

Q- In what currency should the information about foreign assets be presented?

The information about the foreign assets you hold or held in the financial year should be presented in the ITR in both the currency of the country where the foreign asset is located and the Indian rupee. The foreign currency should be converted into INR using the telegraphic transfer buying rate (TTBR).

Q- Is schedule FA mandatory?

Every Indian resident (ordinary resident) who holds any foreign asset or foreign account during the accounting year has to furnish the details of the asset while filing an ITR. It is applicable even if the resident’s total income is not taxable and falls within the basic exemption limit.

Q- What happens if I fail to report foreign assets?

If you fail to report your foreign assets, it might attract severe penalties. It might attract a penalty of INR 10 lakh or imprisonment of up to 7 years.

Q- How much is the penalty for not declaring NRI status?

There is no penalty for not declaring NRI status as per the FEMA (Foreign Exchange Management Act) guidelines. However, you must either close your existing savings account or convert it into a Non-Resident Ordinary (NRO) savings account as soon as possible. Failure to do so may result in legal and financial penalties.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.