Reporting of Foreign Assets/Income under Schedule FA in Income tax return

Reporting of Foreign Assets/Income under Schedule FA in Income tax return

Reporting of Foreign Assets/Income under Schedule FA in Income tax return

Introduction:

Obligation to file the Income-tax return (ITR) before due date in prescribed form with appropriate information is the primary responsibility of tax payer. In case of ITR-2 and ITR-3, reporting of certain information under Schedule FA is something non-routine and tough exercise adding complexities of return filing. In order to capture the details of assets such as investments, stocks, mutual funds, and other financial instruments held by Indian residents outside India, Schedule FA was introduced from assessment year 2013-14 as an integral part of Income Tax Return Form. The enactment of the Black Money Act, 2015, reinforced the obligation for Indian residents to disclose such foreign assets and income. Introduction of Schedule FA as an integral part of Income tax return aims to prevent tax evasion and money laundering as well as ensures transparency in international financial interest and helps to maintain tax compliance. Further, data collected through this mechanism helps government for further analysis under various circumstances.

Applicability of “Schedule FA”:

• All residents Individuals & HUF who are Resident & Ordinary Resident is required to report Foreign Assets while filing Income tax return.
• Fourth proviso to Section 139(1) mandates a person, being a resident and ordinarily resident holding overseas assets to file their income tax return without taking in to consideration their total income in the following two circumstances:

1. A person who holds any assets located outside India (including any financial interest in any entity) as a beneficial owner or otherwise or as a signing authority in any account located outside India
2. Is a beneficiary of any asset (including any financial interest in any entity) located outside India

• Beneficial Owner in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person.
• Beneficiary in respect of an asset means an individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary.

Exclusion from Reporting: 

Following persons are not required to Report information under Schedule FA of Income tax return.

• Non-Residents
• Resident But Not Ordinary Resident
• Foreign citizen (even if he qualifies as R & OR) comes to India on a business/employment/student visa and foreign assets was acquired when he was Non-Resident of India provided no income is derived from such foreign assets during previous year
• An individual being a beneficiary of any assets (including any financial interest in any entity) located outside India, where, income if any arising from such assets is includible in the income of the beneficial owner or legal owner.

Period for disclosure:

• Table A to F of Schedule FA requires reporting of foreign assets or income pertaining to the calendar year ending December 31
• Consequently, taxpayer should disclose under Schedule FA details of any foreign assets held and income earned during the period from January 1 to December 31, whereas period of return of Income in India is April 1 to March 31. This may lead to disparity in disclosed information/income in Schedule FA and reported information/income in ITR. As such there is not legal consequences of such mismatch in reporting considering the objective of induction of Schedule FA provided income for the relevant assessment year should be properly taxed.
• All in all, one should ensure accurate and comprehensive reporting to comply with tax regulations and avoid potential penalties or legal consequences.

Conclusion:

Heading towards globalisation, entrepreneurs/employees frequently travel across globe to scale up their businesses. In the process of dealing global transactions, taxpayer creates an asset outside India and sometime also earns foreign income. Entrepreneurs may establish legal structure in the source country for ease of transactions or to gain the global visibility. Schedule FA aims to capture all such foreign assets/income held by resident taxpayer. One should also ensure the compliance with FEMA regulation while reporting in Income tax return. It is always recommended to scrutinize such foreign assets /income before filing of return every year and report accurately to avoid handsome amount of penalty.

Amit S K Gupta & Co | Chartered Accountants 

CA Amit Gupta, [email protected], 9654346350

CA Pooja Gupta, [email protected], 9654346350.

Disclaimer: This blog is intended for educational purposes only and should not be interpreted as tax advice. It is recommended to seek guidance from a qualified professional for advice relevant to your circumstances. For any feedback, inquiries, or suggestions, please feel free to reach out to us.