Disclosure of Foreign Assets in Income Tax Return: Penalty & Deadline
- Farheen Mukadam
- Jul 11
- 6 min read
Updated: Aug 13
The Income Tax Authorities have long been concerned about the flow of illicit funds. In 2015, a comprehensive law known as "The Black Money Act" was introduced in recognition of the necessity to limit black money. In order to prevent tax evasion and improve openness in cross-border transactions, the new law requires you to report foreign assets and income on your income tax return. The Income Tax Department recently started a Compliance-cum-awareness campaign to encourage Indian taxpayers to declare overseas assets and income in their AY 2025 Income Tax Returns, as the final deadline of December 31st to file the amended or late income tax return draws near. Depending on how serious the omission was, failing to do so may result in prosecution and a heavy penalty of Rs. 10 lakhs. In this article, we will explain everything about the disclosure of foreign assets in an income tax return in detail, including the penalty for non-disclosure and the deadline for disclosure.
Table of Contents
What are Foreign Assets?
To begin with, it is crucial to understand what is included in foreign assets. Bank accounts in other nations, investments in stocks, mutual funds, real estate, and other capital assets outside of India, financial stakes in foreign companies, signing authority over foreign accounts, insurance or annuity contracts, etc. are all considered foreign assets for those residing in India.
Tax Return Filing with Foreign Assets: Who Needs to Disclose Foreign Assets?
Indian residents who meet the requirements of the Income Tax Act of 1961 as "Resident and Ordinarily Resident" must declare all foreign assets and income on their income tax return. Learn more about the details of who is required to disclose this information on the income tax return:
Resident Individuals and HUFs
In the ITR, all Indian taxpayers (individuals and HUFs) who are "residents and ordinarily residents" are required to report all of their foreign assets and income. This includes information regarding foreign bank accounts, the signing authority for accounts maintained overseas, and investments in stocks, mutual funds, real estate, and other financial products.
Beneficial Owners
You should appropriately report the information about any overseas financial assets in your income tax return if you are the beneficial owner of any such assets or if you have signing power over any foreign bank account.
Beneficiaries of Foreign Assets
A beneficiary of any financial asset in a foreign nation is required to submit an income tax return and provide all necessary information if the income received does not count toward the beneficial owner's income.
Importance of Disclosing Foreign Assets in ITR
It is crucial to disclose foreign assets and income on income tax filings in order to guarantee adherence to Indian tax regulations. The following list of factors makes it extremely crucial:
All foreign assets and income have to be disclosed on the ITR in the designated schedules, such as Schedule FA for foreign assets, and Schedule FSI for foreign source income, which includes income like dividends, interest, or capital gains received from foreign sources, in accordance with the Black Money Act of 2015.
The seriousness of the Income Tax Department's approach to handling such transactions is demonstrated by the Rs. 10 lakh penalty for failing to disclose foreign assets and income on income tax returns.
By completing Schedule TR (Tax Relief) and utilizing a double taxation avoidance agreement, taxpayers can claim tax relief for taxes paid in a foreign nation with the help of accurate reporting and disclosures.
In addition to assisting the government in monitoring total worldwide revenue, accurate reporting of foreign assets guarantees that each taxpayer is effectively fulfilling their tax obligations.
Steps to Disclose Foreign Assets in ITR
You must complete the information in Schedule FA of the Income Tax Act of 1961 in order to report foreign assets on your ITR. Here is a detailed procedure to adhere to:
Step 1: The first and most important step is to determine the various forms of foreign assets that are held overseas, including stocks, bank accounts, real estate, and other financial instruments.
Step 2: Begin filling out Schedule FA, which requests information such as account number, country name, code, currency code, zip code, and the name and address of the foreign institution.
Step 3: You must provide information about the investment's initial value, opening balance, closing balance, and peak balance over the course of an accounting year in both foreign and Indian currencies.
Step 4: Any income or revenue received from the sale or redemption of investments during an accounting year must be declared in both Indian rupees and foreign currency.
To support the disclosures made in the income tax return, don't forget to save all of the specific records and paperwork related to all overseas assets.
Penalties for Non-Disclosure of Foreign Assets in ITR
If you give false information or omit information about your overseas holdings, you may face harsh penalties. The following are the consequences for omitting or misrepresenting foreign assets on schedule FA of the ITR:
You could be fined Rs 10 lakhs for each year you fail to disclose your overseas assets.
You might be imprisoned for up to seven years if you intentionally evade taxes by failing to list any overseas assets on your ITR.
You also lose the ability to claim compensation for your overseas income under the Double Taxation Avoidance Agreement if you fail to declare.
Deadline for Tax Return Filing with Foreign Assets
Typically, the income tax return must reveal overseas assets by July 31 of the assessment year. The usual income tax filing deadline and this deadline coincide. You can, however, file a revised or late return by December 31 of the assessment year without facing harsh penalties if your overseas assets were either not disclosed or declared improperly.
Conclusion
To put it briefly, revealing overseas assets and income on an ITR is essential to maintaining openness in tax compliance and avoiding fines. Accurately completing the schedules for foreign income and assets also aids in receiving tax relief for taxes paid overseas. Depending on your unique income circumstances, either ITR 2 or ITR 3 are the proper ITR forms for these disclosures. For example, ITR-3 would be your preferred form if you have both overseas income and income from business or professional services.
Frequently Asked Questions
Q1. Is it mandatory to declare foreign assets in ITR?
Yes, both residents and non-residents have to declaring foreign assets in the ITR under Schedule FA in accordance with the Black Money Act of 2015.
Q2. What is tax applicable to undisclosed foreign income and assets?
Unreported overseas assets and income are taxed at a flat rate of 30%. Regarding this income, there is no deduction, exemption, or set-off of losses permitted.
Q3. Where to show foreign assets in ITR?
The Income Tax Act's Schedule FA should contain information about foreign assets. This schedule covers the disclosure of assets such as foreign bank accounts, account signing authority, financial instrument investments, etc.
Q4. How to declare foreign shares in ITR?
The values of these assets should be declared in Indian rupees after being converted from foreign currencies, and these investments should be listed in Table A3 under schedule FA in your ITR. Dividend reporting, however, might be a little challenging. The assessee must pay the necessary dividend tax and declare dividends as income from other sources in the year they are paid. Regardless of whether they are sent to India or not, dividends are subject to taxation in the year they are generated. To prevent double taxation, you can deduct taxes that have already been withheld in a foreign nation before the dividend is paid from your income tax return in India.
Q5. What is the threshold for foreign assets?
No value-based thresholds are applicable to foreign assets under the Black Money Act of 2015. Residential status and foreign asset investments abroad are the basis for the requirement.
Q6. What if you didn’t disclose foreign assets in your ITR for FY 2024-25?
To avoid fines or other action from the Assessing Officer, it is essential to file a corrected return with all relevant information in Schedule FA if you failed to disclose your overseas assets in your ITR. The significance of prompt compliance is highlighted by the IT Department's recent crackdown, which involved notifying taxpayers who had neglected to register their foreign holdings. In order to avoid severe fines, make sure you file the amended return by the deadline of December 31, 2025.
Q7. What is the penalty for failing to disclose foreign assets?
A significant fine of Rs. 10 lakhs or up to seven years in jail would be imposed for failing to disclose foreign assets.
Q8. In what currency does the information about foreign assets have to be presented?
Any foreign assets you presently own or have owned throughout the fiscal year must be reported in the ITR in both Indian rupees and the currency of the relevant nation. The telegraphic transfer buying rate (TTBR) should serve as the basis for converting foreign currencies to Indian rupees.
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