Undisclosed Foreign Assets: Common Mistakes
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Undisclosed Foreign Assets: A Costly Oversight You Can’t Afford
According to Income tax act, all residents must report foreign assets & income in Schedule FA of ITR. Report foreign assets and income Reporting like Bank accounts, financial interests, Immovable property, Trusts, Any other foreign asset. Foreign Employee Stock Option Plans, shares, bank A/cs, insurance policies, or any overseas asset even if they generate no income must be disclosed in your Indian ITR. If you held any foreign asset at any time during Calendar Year 2024, you must ensure it is disclosed in Schedule FA of your ITR. Revise your return on or before 31 December (if not already disclosed).
Disclose Foreign Assets :
Ordinarily Resident (ROR) taxpayers qualify for mandatory reporting; Resident but Not Ordinarily Resident and Non-Residents remain exempt. Even dormant accounts, small balances, or jointly held assets require disclosure if you qualify as ROR. Residential status demands careful verification, as myths like NRI exemption often lead to errors. following Foreign Assets to Report in ITR
- Foreign bank accounts and signing authority.
- Financial interests in overseas entities, including Employee Stock Option Plans/Restricted Stock Units and shares.
- Immovable property abroad.
- Insurance policies, trusts, or any other capital assets.
- Report peak values in foreign currency and INR equivalents for the period January-December 2024.
- Keep supporting documents ready (bank statements, ESOP details, insurance policy copies) for smooth compliance.
Compliance Steps for Foreign Asset Disclosure
- File or Revise Your ITR : Use ITR-2 or ITR-3 (not ITR-1/4). Deadline for revision: 31 December 2025 & Include Schedule FA for foreign assets.
- Report Foreign Source Income: Use Schedule FSI for foreign income & claim DTAA credits to avoid double taxation.
- Proactive Disclosure: When uncertain, disclose proactively. Ownership triggers disclosure, even if there is no income.
- Non-disclosure is far more costly than disclosure. If you are a resident or Resident but Not Ordinarily Resident, foreign asset reporting is mandatory income or not.
Common Mistakes on Undisclosed Foreign Assets
- Assuming NRI status exempts disclosure (check residential status carefully), ignoring dormant accounts or small balances, and not reporting jointly held foreign property, even if there is no income, disclosure is mandatory for residents. When in doubt, disclose. Normally people have common myths like “There’s no income, so no disclosure required.” Which is totally incorrect, like Under Indian tax law, ownership itself triggers disclosure, not income.
- Assets Commonly Missed Foreign Employee Stock Option Plans / Restricted Stock Units Overseas bank accounts, Foreign insurance policies, Shares in overseas companies, Interest in foreign trusts / entities and taxpayer Ignorance is no longer a defense. If you are a resident (or a resident but not ordinarily a resident), foreign asset disclosure is mandatory, irrespective of income
Real consequences we are seeing in practice on undisclosed Foreign Assets
An MNC executive penalised INR 40 lakh under the Black Money Act, despite earning no income from his foreign holdings, & a returning NRI is under scrutiny for a long-forgotten foreign insurance policy. What is the reason the Foreign Assets disclosure matters?
- Black Money Act penalties run into lakhs
- Prosecution provisions exist
- The reputational and compliance stigma lasts far longer than the penalty
- Following Consequences of Non-Disclosure:
- Tax @ 30% on value of undisclosed asset
- Penalty: 3x the tax amount
- Prosecution: Up to 10 years imprisonment