Tax Authorities Uncover Rs 22,000 Crore In Foreign Assets—Here’s How to Avoid Penalties

Disclosure of Foreign Assets and Liabilities in Schedule FA (Foreign Assets)

In case a taxpayer is a resident and ordinarily resident in India, the details of all foreign assets or accounts in respect of such taxpayer who is a beneficial owner, a beneficiary, or the legal owner, would be required to be disclosed in the Schedule FA “Details of Foreign Assets and Income from any source outside India"

Beneficial owner in respect of an asset would mean an individual who has provided, directly or indirectly, consideration for the asset and where such asset is held for the immediate or future benefit, direct or indirect, of the individual providing the consideration or any other person.

Whereas, a beneficiary in respect of an asset would mean an individual who derives an immediate or future benefit, directly or indirectly, in respect of the asset and where the consideration for such asset has been provided by any person other than such beneficiary.

Reporting Foreign Income In Schedule FSI (Foreign Source Income)

Resident and Ordinarily Resident (RoR) taxpayers would be required to disclose their foreign-sourced income details in Schedule FSI “Details of Income from outside India and tax relief”.

“In this Schedule, the taxpayer would be required to report the details of income, which is already included in total income, accruing or arising from any source outside India. It is pertinent to note that such income should also be separately reported in the head‐wise computation of total income,” says Suresh Surana, a Mumbai-based chartered accountant.

The relevant head of income under which such foreign source income has been reported should also be duly mentioned. Please note that the reporting requirement of foreign-sourced income is generally not applicable in the case of Resident and Not Ordinarily Resident (RNOR) and Non-Residents (NR), unless such income is received/accrued or deemed to be received or accrued in India.

Penalties and legal consequences

Failure to disclose foreign assets and income can attract stringent penalties and prosecutions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Section 43 of the Black Money (Undisclosed Foreign Income & Assets) & Imposition of Tax Act 2015 imposes penalty of Rs. 10 lakhs for failure to furnish in the income tax return any information or for furnishing inaccurate relating to an asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such relevant year.

It is pertinent to note that penalty under this section shall not apply in respect of an asset, being one or more bank accounts having an aggregate balance that does not exceed a value equivalent to Rs 5,00,000 at any time during the relevant year. With effect from 1st October 2024, such penalty shall not apply in respect of an asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed Rs 20 lakh. Please note that this disclosure is to be made for the respective calendar year.

Further, the provisions of Section 276C(1) of the IT Act (corresponding to Section 478 of the Income Tax Bill, 2025) may be attracted leading to prosecution (subject to rigorous imprisonment which may be for a period of 6 months to 7 years and/or fine) if the revenue authorities are of the view that non-disclosure of foreign assets or foreign income results in a willful attempt to evade tax, penalty or interest chargeable or imposable or under-reports his income. Taxpayers must comply with these regulations to avoid legal consequences.

What Taxpayers Should Do

“In order to ensure compliance pertaining to disclosure of Foreign Assets and Foreign Income and to avoid scrutiny from tax authorities, taxpayers should diligently report all foreign assets and income accurately in their income tax returns. This includes bank accounts, financial interests, immovable properties, and any other overseas assets. Ensure that these disclosures are made within the stipulated timelines to avoid penalties,” says Surana.

Further, it is recommended that taxpayers maintain detailed records of all foreign assets and income, including acquisition dates, sources of funds, and any related financial documents. Proper documentation supports the legitimacy of the assets and income and provides evidence in case of inquiries from tax authorities.

Claiming Foreign Tax Credit In Schedule TR (Tax Relief)

If one has paid taxes on foreign income in the country where it was earned, they may be eligible to claim foreign tax credit in India under Double Taxation Avoidance Agreements (DTAA) or unilateral relief. This helps avoid double taxation.

In case any tax has been paid outside India on such foreign source income and tax relief, as admissible, is being claimed in India, the relevant article of applicable DTAA should also be mentioned.

“Further, in Schedule TR “Summary of tax relief claimed for taxes paid outside India”, a summary of tax relief which is being claimed in India for taxes paid outside India in respect of each country would be required to be provided,” says Surana.