Undisclosed Foreign Assets: Common Mistakes

Income Tax Communications for Non-Disclosure of Foreign Assets AY 2025-26 (FY 2024-25)

In December 2025, the Income Tax Department issued emails, SMS alerts, and portal intimations to taxpayers regarding possible non-disclosure of foreign assets and foreign income in their income tax returns for AY 2025-26. These communications are compliance nudges, not penalty notices, giving taxpayers an opportunity to voluntarily correct disclosures by 31 December 2025.

Why Are These Communications Being Issued?

• The alerts are data-driven, based on information received under international exchange mechanisms such as FATCA (Foreign Account Tax Compliance Act—largely from the USA), CRS (Common Reporting Standard), and AEOI (Automatic Exchange of Information).
• Foreign jurisdictions report details of financial accounts, securities holdings, dividends & capital gains, and ESOPs/RSUs directly to Indian tax authorities.

Who Must Report?

• Resident & Ordinarily Resident Individuals : Resident & Ordinarily Resident  taxpayers are required to disclose  In Schedule FA of All foreign assets held at any time during calendar year 2024 Even if held for a short period & Even if no income was earned
• In Schedule FSI : Foreign income (dividends, interest, capital gains, etc.)
• In Schedule TR : Foreign Tax Credit (FTC) claimed & Must be supported by Form 67

Common Foreign Assets Triggering These Alerts

• Taxpayers often overlook reporting of US stocks, ETFs, mutual funds, ESOPs/RSUs of foreign employers. Reinvested dividends, Temporary or small investments, Investments made through platforms such as INDmoney, Groww (international), Vested & Direct foreign brokers
• Investing via an Indian platform does NOT remove the Schedule FA reporting obligation.
• Disclosure Is Mandatory Even if no income was earned, assets were held briefly, dividends were reinvested, investment value was small, and taxes were already paid abroad. Schedule FA reporting is independent of taxability.

Correct ITR Forms

• If foreign assets or income exist, ITR-2 – Salary / capital gains & ITR-3 – Business or professional income,
• ITR-1 and ITR-4 cannot be used if foreign assets are held or foreign income exists.

Consequences of Non-Compliance

• Failure to disclose foreign assets may attract action under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, including a penalty of up to INR 10 lakh per undisclosed foreign asset, with relief available if the aggregate value of movable foreign assets is ≤ INR 20 lakh. Important Exception This relaxation does NOT apply to immovable foreign property
• Non-disclosure of foreign land or house = non-compliance, even if No rent is earned, the property is self-occupied, or the Property is vacant
• Additional tax, penalties, reassessment, and prosecution risk may arise if defaults are not corrected.
• With increased global tax transparency, foreign asset reporting is now fully traceable. Timely voluntary disclosure or correction before 31 December 2025 ensures peace of mind, Avoidance of penalties, and a Clean compliance history

Which Foreign Assets Are to Be Declared in Schedule FA of ITR

Schedule Foreign Assets is applicable to resident & ordinarily resident taxpayers who hold, have signing authority over, or derive income from foreign assets at any time during the relevant financial year.  This is a reporting schedule, not a tax computation schedule. Disclosure requirements are independent of taxability. Disclosure is required even if income is NIL; low-value or inactive assets are NOT exempt. Schedule FA reporting is independent of taxability and applies even if asset income is taxed abroad. Applies even if asset is jointly held (ownership must be disclosed)

Types of Foreign Assets/Income & Reporting Details

Foreign ESOPs/RSUs (Vested Shares)

• When to Report: Every year from year of vesting until the year of sale

• Where to Report: Schedule FA—Vesting creates ownership—even if shares are not sold.

RSUs Sold Under “Sell-to-Cover” Mechanism

• When to Report: Year of transfer (sale)

• Where to Report:

  • Schedule CG – Capital gains (if any)

  • Schedule FA – For balance shares still held

Dividend from Foreign Shares

• When to Report: Year of credit

• Where to Report: Schedule OS – Income from Other Sources. Dividend reporting is separate from asset disclosure in Schedule FA.

Foreign Shares / Brokerage Account

• When to Report: Every year until shares are sold and the account is closed/funds are repatriated (including dividend balances lying abroad). 

• Where to Report: Schedule FA

Foreign Bank Accounts

• When to Report: Every year until the account is closed

• Where to Report: Schedule FA – Applies even to Salary accounts, Dormant or zero-balance accounts

Foreign Insurance Policies (with Surrender Value)

• When to Report: Every year until maturity or surrender

• Where to Report: Schedule FA

Foreign Immovable Property (Land/Building)

• When to Report: Every year until sold

• Where to Report: Schedule FA

Consequences of Non-Disclosure

• Failure to report foreign assets may attract a penalty under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. Penalty up to INR 10 lakh per year per asset. Reopening of assessments & prosecution in serious cases. “No income earned” is NOT a defence for non-reporting.

Commonly Missed Foreign Assets (Still Reportable)

• Many taxpayers inadvertently miss these Foreign Mutual Funds/ETFs, foreign retirement accounts (401(k), IRA, superannuation, pension accounts, etc.), beneficial interest in foreign companies, LLPs, or trusts, foreign custodial/investment accounts, foreign cash value life insurance & ESOPs vested but not exercised/sold.
• Schedule FA is a strict disclosure schedule with zero tolerance for omissions., If you are ROR and held any foreign asset—even briefly—you must evaluate Schedule FA applicability carefully.

Undisclosed Foreign Assets: A Costly Oversight You Can’t Afford

According to the 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, and any other foreign asset. Foreign employee stock option plans, shares, bank accounts, 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.

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