The Importance of Reporting Foreign Income and Assets

The enactment of the Black Money law has introduced severe penalties for taxpayers who do not fully disclose their foreign incomes, assets, and related information. Non-compliance now constitutes a violation of both income tax and black money regulations, leading to dual legal consequences for individuals who fail to report their foreign income and assets within the stipulated timeframes.

Many taxpayers remain uncertain about the mandatory reporting requirements for foreign assets and income. To address this uncertainty, the income tax department issued a brochure on December 11, 2024, clarifying which taxpayers must submit schedule foreign assets (FA) and additional documentation in their ITR by December 31, 2024, if not previously completed.

Former chief commissioner of Income Tax, Ramakrishnan Srinivasan, emphasized the importance of disclosing foreign bank accounts and shares received as ESOP during employment with multinational companies. Non-disclosure can trigger penalty proceedings by the tax department.

Who Should Disclose Foreign Assets/Income?

All Indian residents with overseas income or assets are required to make declarations. The definition of residency includes individuals who have stayed in India for 182 days or more in any previous year, or those who have spent 365 days or more across four preceding years plus 60 days in the previous year.

The guidelines also specify that Hindu Undivided Family, Firms, or Association of Persons are considered resident entities unless their management and control operates entirely outside India. Additionally, Indian companies or those with effective management based in India fall under this category.

Penalties for Non-Disclosure of Foreign Income and Assets

Failing to disclose foreign income and assets can trigger serious legal consequences. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 authorizes initiation of assessment proceedings against defaulters. A monetary penalty of Rs 10 lakh is applicable when the combined value of assets (excluding immovable property) surpasses twenty lakh rupees.

How to Disclose Foreign Income and Assets?

Declarations must be submitted using appropriate ITR forms, excluding ITR-1 and ITR-4, based on individual circumstances. Disclosure must be made in the Income Tax Return for the Assessment Year when the taxpayer holds resident status in India during the previous year. Gather comprehensive information about foreign assets and income sources, and input the required information in appropriate Schedules by following the detailed instructions available on income tax.gov.in.