Filing ITR is a mandatory process through which individuals are required to report their income and taxes to the government. ITR should be filed by every individual and business earning an income. It allows the government to track an individual’s income, assess tax liabilities, and ensure that they are compliant with tax laws. Taxpayers are required to disclose any of the foreign assets along with domestic income. This is necessary for the transparency of the individual’s income and the prevention of tax evasion.
The advisory issued by the Income Tax Department on November 16, 2024, has clarified that tax residents of India must report various types of foreign assets. Recognizing the importance of disclosure of foreign assets, the Income Tax Department of India is running an awareness campaign to remind taxpayers of their responsibility to declare their foreign assets in ITR.
The department declared that every asset, if not disclosed, would be strongly penalized by ₹10 lakhs under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. The deadline for taxpayers to file revised or belated ITRs is December 31, and it is crucial to ensure that foreign assets are accurately reported.
What are Foreign Assets?
Foreign assets for tax residents of India according to the Income Tax Department encompass a wide range of holdings abroad. This includes:
- Bank accounts
- Financial interests in foreign entities
- Cash value insurance policies
- Annuity contracts
- Immovable property located abroad
- Custodial accounts
- Equity and debt interests in foreign entities
- Trustee or beneficiary roles in foreign trusts
- Signing authority over foreign accounts
- Other capital assets held overseas
If an individual holds any of the above foreign assets, they must report them in their ITR.
This disclosure is mandatory even if:
- Your income from foreign sources is below the taxable limit.
- The foreign assets were obtained from disclosed sources.
Taxpayers need to fill out the Foreign Asset (FA) or Foreign Source Income (FSI) schedule in their ITR for the disclosure of foreign assets.
To make taxpayers aware of the requirements, the Central Board of Direct Taxes (CBDT) which is a governing body of the Income Tax Department (ITD) will be sending reminders via registered email or phone number.
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ITR: Declare Foreign Assets by Dec 31 or Face Rs 10 Lakh Fine
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Who Needs to Report Foreign Assets?
If the taxpayer is a Residence or Ordinary Resident of India, they must disclose their foreign assets in the FA schedule. This includes individuals and Hindu Undivided Families (HUFs).
Schedule FA filing: Every resident and ordinarily resident or HUF who owns foreign assets or has any signing authority on foreign accounts should fill out Schedule FA for the reporting year. This includes the beneficial owner or beneficiary of the asset.
Fourth Proviso to Section 139(1): This requires residents possessing foreign assets or having authority to sign on foreign accounts to file their Income Tax Return (ITR).
Fifth Proviso to Section 139(1): This provides an exception for foreign asset ownership that applies only in cases where such income is already included in total income.
Exemptions for Foreign Citizens
The rules are a bit different for foreign citizens living in India. If they are known to be “R&OR” (Resident and Ordinarily Resident) being in India for business, work, or study. They may escape reporting the foreign assets bought outside the country before coming to India. This means they don’t have to report any foreign assets they bought before moving. But this is only exempted if that asset does not earn any income during that financial year.
What is Schedule FA and How to Fill Out the Schedule?
Schedule FA is a schedule in ITR where taxpayers report their foreign assets. To fill up the schedule you need to provide:
Identify the foreign asset: Choose the type of foreign asset you own
Asset Details: Includes the name, address, country code, zip code, and currency of the foreign asset.
Financial Information: Includes the initial investment, opening balance, peak balance during the year, and closing balance (both in foreign currency and Indian Rupees).
Income and Sale Details: Any income generated from foreign assets and proceeds from the sale or redemption of these assets.
Claiming DTAA Relief: Declare reliefs claimed under Double Taxation Avoidance Agreements for income from foreign assets.
What Happens If You Don’t Report Foreign Assets?
On your failure to report foreign income or assets, the Income Tax Department is empowered to impose hefty penalties under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
As per this section, non-disclosure may lead to a penalty of Rs 10 lakh. There are, however, exceptions. Penalty does not apply, for example, if the aggregate balance of two or more foreign bank accounts is less than Rs 5 lakh. Similarly, assets below 20 lakhs, other than immovable property, will not attract penalties from October 1, 2024 onwards, even if not disclosed.
The deadline for taxpayers to file revised or belated ITRs is December 31, and it is crucial to ensure that foreign assets are accurately reported.
Belated Returns and Revised Returns
If you missed the original due date for ITR filing (31st July 2024), you are allowed to file the belated return till the 31st of December, 2024. Such belated returns are authorized under Section 139(4) of the Income Tax Act. However, there are a few consequences to keep in mind:
1. Interest on unpaid taxes: If there is any tax you owe, you will have to pay interest under sections 234A (for late filing) and 234B (for unpaid taxes).
2. Late fee: A belated return can also attract a late fee, as per the provisions of the Income Tax Act.
The penalties and interests will likely increase the longer you delay filing your return.
CBDT’s Awareness Campaign
The motive behind the Central Board of Direct Taxes (CBDT) launching a campaign is to raise awareness and promote the importance of complying with foreign assets declaration requirements for the 2024-25 Assessment Year.
To make taxpayers aware of the requirements, the Central Board of Direct Taxes (CBDT), being a governing body of the Income Tax Department (ITD), has been sending reminders via registered email or phone number. The Income Tax Department, from its side, has made it clear that taxpayers must fulfill their obligations regarding accurate disclosure. This reminder ensures compliance with the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA).
Related Case Law
Facts:
Three family members received notices under the Black Money Act (BMA) for not fully disclosing their foreign assets in tax returns for assessment years 2015-16 and 2016-17. The concerned property was bought out of the income already taxed in India, and money was sent through official channels. Although it was mentioned in the returns filed, the details were found to be incomplete/incorrect. The taxpayers revised their returns after receiving notices. However, this did not prevent the authorities from initiating criminal prosecution against them.
Court’s Decision:
1. The court insisted that prosecution cannot be initiated for incompleteness or incorrectness of the declaration if the asset has been adequately disclosed in the revised return.
2. Also, it finds its legitimacy in the fact that the prosecution cannot start before the final assessment under the Black Money Act.
Since the funds were legitimate and taxed, and taxpayers amended their returns, the court quashed the criminal charges and mentioned penalties, not criminal prosecution appropriate here.
Key Takeaway: Taxpayers must ensure full and accurate disclosure of foreign assets to avoid legal issues. In this case, the court ruled in favour of the taxpayers, but incomplete disclosure can still lead to penalties or prosecution.
To Wrap Up
The Income Tax Department highlights the necessity for taxpayers to fully adhere to regulations concerning the reporting of foreign assets. Not reporting these assets can result in hefty penalties, making it vital to ensure that all foreign holdings and income are correctly declared by the deadline; of December 31st, 2024.
To sidestep severe financial repercussions and legal complications, taxpayers should carefully examine their Income Tax Returns (ITR) before submitting them. By doing this, they can confirm that they fulfill the requirements and avert any expensive penalties or legal troubles in the future.
To get expert assistance in income tax return filing, visit https://corpbiz.io/.
Frequently Asked Questions
What is the deadline for filing an ITR with foreign asset disclosure?
The deadline for filing your revised or belated Income Tax Return (ITR) for the assessment year 2024-25 is December 31, 2024. If you fail to disclose foreign assets accurately by this date, you may face a penalty.
Who needs to report foreign assets?
If you are a tax resident of India, you must report any foreign assets. This includes individuals, Hindu Undivided Families (HUFs), and anyone with signing authority on foreign accounts.
Do I need to report foreign assets if my income from abroad is below taxable limits?
Yes, you must report all foreign assets, regardless of whether the income from them is taxable or not. The Income Tax Department requires transparency in reporting.
What happens if I miss the original ITR filing deadline?
If you miss the original due date (31st July 2024), you can still file a belated return by December 31, 2024. However, late fees and interest on unpaid taxes may apply.
What foreign assets should be reported?
Any foreign asset, such as bank accounts, equity shares in foreign companies, insurance policies, or properties outside India, must be reported in your ITR.
What is the difference between Foreign Assets and Foreign Income?
Foreign assets refer to the physical or financial holdings you own abroad, while foreign income is the income generated from those assets. Both need to be reported in the ITR.
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