Schedule FA (Foreign Assets) Disclosure in ITR

by Shakshi Bharti | May 8, 2024 | Income Tax, Income Tax filing | 0 comments

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Important Keyword: Foreign Asset, ITR, Schedule FA.

Schedule FA (Foreign Assets) Disclosure in ITR

In the current financial landscape, individuals are expanding their investment horizons by including foreign assets in their portfolios. This strategic move not only allows them to leverage global opportunities but also serves as a hedge against the uncertainties of regional market dynamics. However, the undisclosed inclusion of foreign assets or income in the tax returns of Indian residents could potentially lead to tax evasion and financial opacity.

To address this concern and ensure transparency in financial reporting, the government has implemented stringent measures such as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Under this legislation, Indian residents are mandated to disclose any foreign assets they hold while filing their income tax returns. This disclosure is facilitated through Schedule FA (Foreign Assets), a crucial component of the tax filing process.

Applicability of Schedule FA

This schedule is mandatory for Resident and ordinarily resident individuals who are holding assets outside India.

In the case of Non-resident and Resident but not ordinarily resident persons, schedule FA is not applicable.

Note: If an individual is holding foreign assets but does not have any other income, they are still required to file the income tax return by disclosing such foreign asset holdings.

Foreign Assets that are required to be declared

The resident assessee must declare the following foreign assets in Schedule FA:

Any property or investments held outside India, such as shares, bonds, life insurance, real estate, or other valuable assets. Incomes received from sources outside India, like dividends, interest, or capital gains. Authorization to sign in any account situated outside India, be it a bank, custodian, depository, or trading account.

Ownership or any financial stake in a foreign entity, like being a partner in an overseas business or benefiting from a foreign private trust. If the taxpayer has any beneficial interest in any of the above-mentioned assets, it is also mandatory to report it in their income tax return. Here, a beneficial owner is an individual who has directly or indirectly paid for the asset. Additionally, if the asset is held for the immediate or future benefit of the person who provided the payment or for someone else, they are also considered a beneficial owner.

It is to be noted that all the holdings and incomes should be reported in INR in schedule FA.

Relevant period for Reporting

Taxpayers need to report their foreign asset holdings for the relevant calendar year, which runs from January 1st to December 31st.

For instance, if a taxpayer is filing their return for the Financial Year 2022-23, they must report holdings as on December 31st, 2022.

How to disclose Foreign Assets in ITR

In schedule FA, there are 10 tables in which you must declare your foreign assets and incomes.

Table	Particulars	What to report
A1	Details of Foreign Depository Accounts held (including any beneficial interest) at any time during the calendar year	Saving or term deposit account in foreign banks
A2	Details of Foreign Custodial Accounts held (including any beneficial interest) at any time during the calendar year	Details of funds transferred from bank account to demat account in foreign countries
A3	Details of Foreign Equity and Debt Interest held (including any beneficial interest) in any entity at any time during the calendar year	Share or securities, restricted stock units, Exchange Traded Funds
A4	Details of Foreign Cash Value Insurance Contract or Annuity Contract held (including any beneficial interest) at any time during the calendar year	Life Insurance or any annuity contract in a foreign country
B	Details of Financial Interest in any Entity held (including any beneficial interest) at any time during the calendar year	Voting power in foreign companies or Partnership in LLP or firms are situated outside of India
C	Details of Immovable Property held (including any beneficial interest) at any time during the calendar year	Buildings or House properties owned in Foreign countries
D	Details of any other Capital Asset held (including any beneficial interest) at any time during the calendar year	Saving or term deposit accounts in foreign banks
E	Details of account(s) in which you have signing authority held (including any beneficial interest) at any time during the calendar year and which has not been included in A to D above	Accounts in which you are an authorized signatory or holding signing authority
F	Details of trusts, created under the laws of a country outside India, in which you are a trustee, beneficiary, or settlor	Trust where you are settlor, trustee, or beneficiary
G	Details of any other income derived from any source outside India which is not included in,- (i) items A to F above and, (ii) income under the head business or profession	Any other incomes outside India which are not included above.

Conversion into INR

The reporting in Schedule FA needs to be in INR only, so while reporting we need to convert foreign currency into INR using below mentioned conversion rate:

Income or Asset	Conversion rate	Date of conversion
Peak value	Convert using TTBR	Date of peak value
Initial value	Convert using TTBR	Date on which initial investment is made
Incomes received from asset	Convert using TTBR	Closing rate as on 31 December

Let’s illustrate this with an example.

Shreya, a resident individual, works at Amazon Inc. She exercised Employee Stock Options (ESOPs) on two occasions: September 16, 2022 (valued at INR 484) and February 25, 2023. However, for the income tax return of FY 2022-23, Shreya only needs to report the ESOPs exercised in September 2022 due to the calendar year period.

During the period from January 2022 to December 2022, the ESOPs reached their peak value at INR 493. The closing value as of December 31, 2022, was INR 346. Therefore, she needs to report these details under Table A3 of Schedule FA while filing her income tax return, ensuring compliance with tax regulations.

Tax on Income from Foreign Assets

It’s crucial to recognize that owning foreign assets doesn’t inherently trigger tax liabilities. However, any income generated from these assets is subject to taxation.

When you sell your foreign assets, you’re liable to pay capital gains tax. Conversely, other types of income such as interest or dividends from these assets fall under the category of Income from Other Sources. Similarly, if you earn rental income from foreign assets, it’s taxable under the head Income from House Property.

To ensure compliance and avoid penalties, it’s essential to report all such incomes under Schedule FSI in your income tax return.

Penalty for Non-disclosure of Foreign Assets

Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, failure to report or providing incorrect information about foreign assets may lead to penalties. The Assessing Officer (AO) has the discretion to impose a penalty of INR 10 lakhs. Additionally, individuals could face imprisonment ranging from a minimum of 6 months to a maximum of 7 years, along with fines.

It’s noteworthy that the penalty of INR 10 lakhs is applicable for each year of non-disclosure. Therefore, if a taxpayer fails to disclose foreign assets for multiple years, they could face cumulative penalties.