What Tax Laws Are Regarding Reporting Your Income, And Assets Overseas

The legal framework in India mandates comprehensive reporting of global income and foreign assets by residents, primarily under the Income Tax Act, 1961, the Foreign Exchange Management Act, 1999 (FEMA), and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. “The Income Tax Act subjects all income earned, accrued, or received outside India to taxation, necessitating its disclosure in the prescribed Schedule FA of the Income Tax Return (ITR),” says Tushar Kumar, advocate, Supreme Court of India.

Disclosure Requirements

This includes detailed declarations of foreign bank accounts, immovable property, financial interests, and other categories of overseas assets. The Black Money Act imposes stringent penalties for non-compliance, including financial levies amounting to three times the tax liability on undisclosed foreign assets and prosecution, which may result in imprisonment ranging from three to ten years. “Concurrently, FEMA governs cross-border transactions and investments, mandating compliance with the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS). Taxpayers availing relief under Double Taxation Avoidance Agreements (DTAAs) with over 90 jurisdictions must also ensure meticulous reporting of foreign tax credits under Sections 90 and 91 of the Income Tax Act,” says Kumar.

The statutory obligations extend to the disclosure of non-income-generating assets, such as dormant bank accounts or artwork, with significant consequences for omission or misstatement. Penalties under Section 271FAA of the Income Tax Act, along with criminal sanctions under the Black Money Act, highlight the gravity of non-compliance. “The reporting requirements demand precision, including granular details of overseas holdings such as account balances, acquisition costs, and ownership interests. To mitigate risks and ensure compliance with these rigorous legal requirements, taxpayers are advised to maintain meticulous records and seek expert guidance for accurate disclosures,” says Kumar.

Penalties For Non- Compliance

“Failure to comply with these requirements can result in stringent penalties and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,” says Kunal Savani, Partner, Cyril Amarchand Mangaldas.

The penalty is very steep. ‘Failure to report foreign income/assets including beneficial interest in such assets, results in a penalty of a sum of Rs 1 million. Additionally, the taxpayer may be subject to a penalty of 300 per cent of the tax determined,” says Ankit Namdeo, Managing Partner, Ank Advisors.