Overview on ITR Reporting of Foreign Equity/Debt Investments

Guidance on ITR Reporting of Foreign Equity/Debt Investments

When filing your Income Tax return in India, it is essential to declare foreign stocks and other foreign assets annually, regardless of whether they are sold or not.

Income Tax Return Reporting of Foreign Assets in the ITR Return Form:

All foreign assets, including stocks, real estate, bank accounts, bank deposits, insurance policies, etc., must be declared in the Income Tax return every year as long as they are held.  Foreign assets are declared in Schedule FA (Foreign Assets) of ITR-2 or ITR-3. Foreign stocks are declared in Table A3 of Schedule Foreign Assets, with values converted to INR using the SBI TT (telegraphic transfer) buying rate.

Assesses required to report information in ITR form, i.e.  ITR-3 or ITR-2 whichever ITR form applies to Taxpayer. Below information must be provided while Filing ITR In case Taxpayer has FA & Income or signing authority in Foreign Account during relevant accounting period

• Financial Interest in any entity
• Immovable property
• Foreign Depository/Custodial A/c .
• Investments in Foreign Equity or Debts
• Surrender Value of Foreign Insurance/Annuity Contract
• Trust in which Taxpayer is a Trustee or Settlor or Beneficiary
• Details of account in which there is a Signing authority
• Other Capital assets

Income tax Disclosure need under Schedule FA :

When filing the ITR in India, Resident individuals holding U.S. Company equity shares or any company corporate bonds required to be report investments in Income tax return form Table A3 of Schedule FA. Reporting Foreign Equity/Debt Investments in Table A3 of Schedule FA Following are Details to Report of Foreign Equity/Debt Investments including the General Information about the Foreign Company or Entity

• Country Name and Code: Mention country where foreign investment is held (e.g., United States) & corresponding country code.
• Name: Provide the name of foreign company.
• Nature of the Entity: Specify type of entity (e.g., trust, corporation, etc.).
• Address and Zip Code: Include full address & zip code of foreign company.
• Date of Acquisition: State date when equity or debt instrument was acquired.
• Peak Value during Accounting Period: Mention highest value of investment during accounting period, converted into Rs.
• Initial Value of the Investment: Report value of investment at time of acquisition, converted into Indian currency i.e. Rs.
• Closing Value as at End of Accounting Period: Report value of investment at end of accounting period, converted into Rs.
• Total Gross Proceeds from Sale or Redemption: Mention total gross proceeds from sale or redemption of investment during accounting period, converted into Rs.
• Gross Interest Received: If investment is in debt instruments (e.g., corporate bonds), report gross interest received during accounting period, converted into Rs.

Step-by-Step Guide to Filing Schedule FA- Reporting of Foreign Equity/Debt Investments

Step-1: Select the relevant foreign asset and its code from the drop-down menu in the ITR form. Foreign Depository Accounts, Foreign Cash Value Insurance Contract or Annuity Contract, Foreign Custodial Accounts, Foreign Equity and Debt Interest, Foreign Immovable Property, Foreign Other Capital Assets, Foreign Accounts where you have signing authority, and Any other Foreign Asset. All values must be reported in INR after conversion from the foreign currency. The standard conversion rate used is the Telegraphic Transfer buying rate provided by the State Bank of India.

Step-2: Enter the basic details of the foreign asset. Details Include: Name of the asset/entity, Address & zip code of foreign entity, Country code, Currency code

Step 3: Taxpayer must Provide the financial details of the investment. Details to Report: like Initial Value of the Investment at the time of acquisition. Opening Balance at the beginning of the accounting period. Highest Balance During the Period during the accounting period. Closing Balance at the end of the accounting period. Report these values in both foreign currency and Indian Rupees (INR). Use the Telegraphic Transfer buying rate provided by the State Bank of India for conversion.

Step-4: Taxpayer needed to Enter details of the income or revenue earned from the foreign asset. Income Details Include earned during the accounting period & Proceeds from the sale or redemption of assets during the financial year and Taxpayer must Report these amounts in both foreign currency and INR. Accurately fill out all the required details in Table A3 of Schedule FA in the ITR form. Ensure that all data is correct and matches the records provided by your broker or financial institution.

Besides U.S. Company equity shares, also report any corporate bonds or other foreign investments held during the accounting period. Taxpayer must ensure you use the TT buying rate provided by SBI for accurate conversion. Verify all details entered in Schedule FA to avoid discrepancies. Tax professionals can assist in accurately filing Schedule FA, ensuring compliance and optimizing your tax returns.

Step-5: Taxpayer Provide details of any relief claimed under the DTAA. Details Include: Amount of foreign taxes paid, Relief claimed under DTAA, Form 67 must be filled to claim the credit for foreign taxes paid,

Capital Gain & Dividend Taxation on Foreign Stocks

• Long-Term Capital Gains: Gains from foreign stocks held for more than two years are taxed at 20% (plus surcharge), with indexation benefits.
• Short-Term Capital Gains: Gains from stocks held for less than two years are taxed at the applicable income tax slab rates.
• Dividend Income: Taxed at the applicable income tax slab rates in India. In the US, a 25% tax is withheld on dividends. Under the Double Taxation Avoidance Agreement between India and the United state of America, you can claim credit for the tax paid in the US using Form 67.

Foreign Tax Credit Claim & Income Tax Reporting:

Form 67 must be filled to claim credit for taxes paid abroad. This should be done in the year the income accrues. Calculate gains in the local currency first, then convert them to INR. Dividends must be reported under “Income from Other Sources” & also in Schedule Foreign Assets where equity shares are declared. Taxpayer also Ensure accurate reporting by using the statements provided by your broker, including Form 1042s for dividend information and tax withheld. Dividends, even if reinvested, must be declared as income and included in the total share value.

Foreign Asset Investigation Unit Compliance:

This unit investigates information on foreign assets received under Tax Information Exchange Agreements.

Trading of Cryptocurrencies:

Cryptocurrencies bought, sold, or held on foreign exchanges should be declared in Schedule FA along with Schedule VDA, despite the lack of explicit definitions in the Income Tax law. Schedule VDA is a section on particular ITR forms. It was introduced in the Union Budget for 2023. It is where you declare any profits made from purchasing and selling VDAs such as Bitcoin, Ethereum, or even NFTs.

When reporting foreign currency or assets in the ITR?

In India, when reporting foreign currency or assets in the ITR for the FY 2023-24, Reporting period depends on the accounting periods of the foreign country where the assets or accounts are held. Here’s a breakdown based on different accounting periods:

• Calendar Year Basis (1st Jan 2023 – 31st Dec 2023): Report foreign assets, foreign accounts, etc., acquired between 1st Jan 2023 & 31st Dec 2023. This applies to assets/accounts in countries where calendar year (January to December 202X) is the accounting period for closing accounts & filing income tax returns.
• FY Basis (1st April 2023 – 31st March 2024): Report foreign assets, foreign accounts, etc., purchase between 1st April 2023 and 31st March 2024.This applies to assets/accounts in countries where the FY (April to March 202X) is the accounting period for closing accounts & filing Income tax returns.
• Other Twelve-Month Accounting Periods: ITR Report foreign assets, accounts held in foreign countries/jurisdictions where a different 12-month accounting or tax filing period is adopted. The period of 12 months ending on any day succeeding 1st April 2023 should be considered.
• Calendar Year vs. Financial Year: The ITR forms require the disclosure of foreign assets held anytime during the previous calendar year. For the AY 2024-25, assets held from January 1, 2023, to December 31, 2023, must be declared.

What is the Consequences of Foreign Assets Non-Disclosure?

Failing to report foreign assets or providing inaccurate information in Schedule FA of your ITR can lead to face penalties & legal consequences. Details are mentioned here under:

Penalties under Income Tax Law:

• • Taxpayers may incur a penalty of Rs. 10,00,000/- for each year that you fail to disclose your foreign assets.
  • Non-reporting of foreign assets is considered willful tax evasion, which can lead to imprisonment for up to 7 years.
  • Non-declaration of foreign assets can revoke your right to claim relief under the DTAA. This means you cannot offset taxes paid abroad against your Indian tax liability, leading to double taxation on your foreign income.

Penalties under other Law:

Failing to declare foreign assets can lead to scrutiny under the Black Money (Undisclosed Foreign Income & Assets) & Imposition of Tax Act, 2015, and may result in penalties of INR 10,00,000/- for each year of non-disclosure.

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Rajput Jain and associates Professional are available to help you file your income tax return without any kind of hassle. We ensuring your foreign assets are accurately reported & you comply with Indian tax regulations. For query or help, contact: singh@carajput.com or call at  9555555480