Mandatory disclosure: Reporting foreign ESPP holdings in schedule FA

Should an employee stock purchase plan (ESPP) involving a company's stock listed overseas, which was awarded in the past, be declared as a foreign asset on the IT Return? Are there any exceptions or thresholds for the ESPP amount that would negate this requirement? The ESPP was already declared in Form 16 issued by the organization for the same year. Please advise.

—Aparna 

As your employer had disclosed the income from exercise of the ESPP, you would be owning the shares listed overseas. Therefore, you would need to disclose such shares in Schedule FA (foreign assets) of your income tax return.  

Any asset owned overseas by a resident (other than a not ordinarily resident, or NOR) must be disclosed in Schedule FA of the income tax return, irrespective of the value of such assets. 

Non-disclosure of foreign assets by a resident, other than a not ordinarily resident, would result in penal consequences under the Black Money Act. Disclosure in Form 16 would not be considered as a disclosure in the income tax return, as Form 16 would only reflect the income taxable in the hands of the employee on the exercise of the option, or the purchase of shares.  

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Furthermore, budget 2024 has proposed that from 1 October 2024, penalty shall not be levied under the Black Money Act for a mere non-disclosure of assets in the income tax return, if the value of the foreign assets (other than an immovable property) do not exceed ₹20 lakh in aggregate.  

Irrespective of the proposed increase in the threshold limit for penalty under the Black Money Act, it is a good practice to disclose all foreign assets in Schedule FA. 

Moreover, in case the foreign asset has not been disclosed in the original return for AY25, you can file a revised return before 31 December 2024. The disclosure made in a revised return shall also be considered as a valid disclosure.  

Schedule FA requires the resident taxpayer to disclose foreign assets held during the calendar year, i.e., in the return for AY25, assets held during the calendar year 2023 need to be disclosed. 

If the shares were received during calendar year 2024, you would need to disclose the shares in Schedule FA of the income tax return for AY26, even though the income would be taxable in the financial year in which the option was exercised.   

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As you are holding shares, you would need to disclose the shares in Table A3 or Table B of Schedule FA.  

—Mahesh Nayak, chartered accountant, CNK & Associates

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