Improving Tax Transparency Of Foreign Assets And Income With CRS And FATCA

Global tax compliance is the foundation of financial transparency in today’s interdependent economy. In the fight against tax evasion, the two most crucial frameworks adopted are the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), which encourage disclosure of income and assets by non-resident individuals to their countries of domicile and home countries, and is critical for their financial health.  

Understanding CRS And FATCA 

The Organisation for Economic Cooperation and Development (OECD) established CRS to promote international tax transparency and cooperation. CRS mandates that financial institutions identify and report accountholders who are residents of other countries within the OECD’s network. The reports are exchanged annually between participating countries to ensure proper tax reporting, prevent tax evasion, and establish a standardised system for exchanging financial information across borders. 

The US Foreign Account Tax Compliance Act (FATCA), enacted into law in 2010, requires foreign financial institutions to disclose information about accounts directly kept by the Internal Revenue Service pertaining to US taxpayers, which will ensure that the IRS can trace back undeclared incomes for the purpose of proper taxation. 

CRS, FATCA, And India  

India participates in international frameworks through detailed processes about its citizens’ foreign financial accounts. These includes the accountholder’s name and address along with their Tax Identification Number (TIN), if provided.  

Additionally, India collects data regarding the present balance in the account, the interest generated, dividends, and other related transactions. All of this data is then used for checking and tracing any undeclared income and to create a conducive atmosphere for tax compliance.  

Indian citizens are liable to report foreign assets and income in their income tax return (ITR). The Income Tax Act, 1961, specifically mentions the following reporting requirements: 

1. Schedule FA (Foreign Assets): For reporting foreign-held assets. 

2. Schedule FSI (Foreign Source Income): For income earned outside India.  

3. Schedule TR (Tax Relief): For claiming credit on taxes paid abroad. 

Non-compliance attracts severe penalties under the Black Money Act, 2015, which was made specifically to curb undisclosed foreign income and assets. 

Benefits Of Transparency 

Compliance with guidelines under CRS and FATCA has many benefits: 

Compliance And Governance: Transparent reporting instils trust in tax authorities and reduces audit scrutiny.  

Legal Security: Rights of litigation or penalties will also be averted through accurate disclosure. 

Tax Relief Opportunities: Proper documentation ensures eligibility for tax relief under Double Taxation Avoidance Agreements (DTAA). 

National Contribution: Proper payment of taxes helps in financing India’s developmental efforts, thus paying for public services and infrastructure. 

Returns 

The income tax department allows taxpayers who have defaulted in disclosing their foreign assets to rectify the omissions by filing a revised ITR.   

The revised ITRs for Assessment Year (AY) 2024-25 should be submitted before January 15, 2025. A revised return brings into full disclosure all the assets and income liable to tax in foreign jurisdictions that may have gone unreported earlier, and thereby, avoids previous non-disclosure penalties, while providing relief in taxes admissible under Indian jurisprudence. 

Compliance And Transparency  

Transparency in reporting global income points towards good governance and accountability. Accordingly, taxpayers should properly fill up the FA, FSI, and TR schedules of ITR. These schedules are also about the country-wise income, tax credit, and investments. 

For Indian taxpayers, compliance is not only a legal obligation, but also a step toward ethical financial practices and national progress. Full disclosure of foreign income and assets by individuals will ensure their financial standing, while contributing to a more transparent global economy. Filing revised returns is an opportunity to align with these principles, ensuring a clean financial record and peace of mind.