Income Tax: How to report foreign income and assets in your ITR?

The Central Board of Direct Taxes (CBDT) is urging taxpayers with undisclosed foreign income to reveal their assets abroad. This effort is part of its ‘NUDGE’ campaign.

This is the second such campaign. Starting 28 November, CBDT sent messages and emails to taxpayers, encouraging them to revise their income tax returns (ITRs) before the 31 December deadline. Read more about revised income tax returns in this Livemint article.

A similar campaign last year successfully led to the disclosure of ₹30,000 crore in foreign assets.

How to report foreign income?

Taxpayers must report foreign income using specific schedules in their ITRs:

Schedule Foreign Source Income (FSI): In this schedule, taxpayers must report the details of income accruing or arising from any source outside India. Please note that this schedule is available only to residents.

Schedule TR (Tax Relief): In this schedule, taxpayers must provide a summary of tax relief claimed in India for taxes paid outside India in respect of each country. This schedule provides a summary of the detailed information outlined in Schedule FSI. This must be filed online along with Form 67.

For the unversed, Form 67 is an income tax form used to claim a Foreign Tax Credit (FTC) for the taxes paid on income earned in a foreign country. Its purpose is to help individuals avoid double taxation on the same income.

Schedule FA (Foreign Assets): In Schedule FA, taxpayers must provide details of their foreign assets or income from any source outside India.

Why is it important?

Taxpayers who believe they can hide these details to escape tax liability are mistaken. International frameworks are in place to ensure transparency.

Frameworks like the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) prevent tax evasion by promoting transparency among tax authorities worldwide. Under CRS and FATCA, Indian authorities receive detailed information about financial accounts held by its residents in foreign countries, including the US.

If foreign income is not reported

Taxpayers must declare their foreign income and assets to prevent adverse repercussions. Failure to report foreign assets and income can lead to an assessment, followed by stringent penalties and potential prosecution. These actions are governed under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

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