Schedule FA in ITR - Disclosure of Foreign Assets in ITR (2024)

What is Schedule FA (Foreign Assets) in ITR?

Schedule Foreign Assets (FA) is a schedule in the ITR wherein you are required to furnish the details of the foreign assets. such as foreign shares, foreign company mutual funds etc.) directly employee stock options (ESOPs) of foreign companies.

In other words, all the foreign assets held by you, either legally, as a beneficiary, or as a beneficial owner, should be disclosed while filing the ITR-2 or ITR-3, as appropriate.

As per the Income Tax Act of 1961, residents and ordinarily resident Indians should report their foreign income, assets, accounts, and shares in the FA schedule in ITR in a given format, regardless of whether the income is taxable in India or not. This schedule helps curb tax evasion through offshore routes.

Why is Schedule FA Important?

Schedule FA plays a crucial role in helping the Indian government prevent the evasion of taxes by making it mandatory to disclose the presence of any foreign assets under the schedule FA of ITR 2. It allows the government to track the assets held by Indian residents on foreign lands and also prevents any kind of money laundering.

In addition to the above, the resident can also avoid paying double tax on the same income by claiming relief under the DTAA (Double Taxation Avoidance Agreement). DTAA, or the double taxation avoidance agreement, is a type of agreement signed between two nations that ensures that the taxpayer does not have to pay taxes multiple times in different countries.

Who is Required to Report Foreign Assets?

The reporting requirement of foreign assets in Schedule FA is a crucial aspect for residents, individuals, and HUFs (Hindu Undivided Families) who are classified as residents and ordinarily resident (R&OR). This requirement ensures transparency in international financial interests and helps maintain tax compliance. Let's break down the relevant provisions and exceptions:

Schedule FA Filing Requirement:

• All residents and individuals who are R&OR, as well as HUFs, must file Schedule FA when they hold any assets outside of India, including any financial interest in an entity, or have signing authority in an account located abroad.
• This includes individuals who hold foreign assets as a beneficial owner or who derive benefit from assets as a beneficiary.

Fourth Proviso to Section 139(1):

• This provision mandates the filing of income tax returns for residents holding overseas assets as beneficial owners, or as signing authorities on accounts located abroad.
• It also applies to those who are beneficiaries of assets located outside India.

Fifth Proviso to Section 139(1):

• There is an exception to the mandatory ITR filing requirement for individuals who are beneficiaries of assets located outside India, provided the income from such assets is already included in the income of the beneficial or legal owner.

Foreign Citizens' Disclosure Exemptions:

• Foreign citizens who are classified as R&OR but have entered India on a business, employment, or student visa receive certain exemptions from disclosing foreign assets under Schedule FA.
• Foreign assets acquired during the period when the foreign citizen was a non-resident of India are not required to be reported, as long as no income is derived from these assets during the current previous year.

Relevant period for disclosure

Taxpayers are required to disclose any foreign assets or income pertaining to the calendar year when filing their Income Tax Return (ITR) forms for the particular assessment. This entails individuals reporting details of any foreign assets held and income earned during the period from January 1, 2023, to December 31, 2023, in Schedule FA while submitting their ITR for the Assessment Year 2024-25. It is essential to ensure accurate and comprehensive reporting to comply with tax regulations and avoid potential penalties or legal consequences. Therefore, taxpayers should diligently gather all relevant information regarding their foreign assets and income for the specified period to facilitate smooth and compliant tax filing.

Rate of Exchange for Conversion

Currency conversion costs are typically 1% of the transaction price. It is assessed by the ATM network or credit card processing company and is often added to the foreign transaction fee that you pay.

Disclosure requirements under Schedule FA

Disclosure of foreign assets in ITR is mandatory in the schedule FA of ITR, if you hold any of the below foreign assets.

Key Information Required for Reporting Foreign Assets

You need to furnish the following details for each foreign asset or foreign account held while filling the schedule FA of the Income Tax Act, 1961 -

• Country name and code
• The name of the foreign entity
• Address and zip code of the foreign entity
• Account number of the foreign repository
• Status of the account and the account opening date or the date of acquisition of the asset
• Initial value of the investment
• The highest value of the investment during the accounting period.
• The closing value of the investment on the last date of the accounting period.
• The value of gross interest credited in the asset account during the accounting year.
• The amount received during the sale or redemption of an investment during the accounting period.

How to File Schedule FA in ITR?

If you hold a foreign asset and are filing your income tax return, you need to follow the below-mentioned steps -

• Step 1. The first step is to identify the category of the foreign asset you hold. You have to select the relevant foreign asset and its code from the drop-down menu while filing the ITR.
• Step 2. In the next step, you need to provide basic details of the foreign asset, like its name, address, zip code, country code, and currency code.
• Step 3. Now, you need to provide the initial value of the investment, the opening balance, highest balance during the relevant accounting period, and closing balance at the end of the accounting year in both the foreign currency and INR.
• Step 4. You must also provide the details of the income or revenue earned during the accounting period, both in foreign currency and Indian rupees. It also includes the revenue or proceeds from the sale or redemption of assets during the financial year.
• Step 5. Details of relief claimed under DTAA for income from foreign assets, if any.

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Consequences of Non-disclosure of Foreign Assets

If you fail to report the details of your foreign assets or furnish inaccurate information, you might face severe penalties. Following are the penalties for non-disclosure or misrepresentation of foreign assets in schedule FA in ITR.

• You might have to pay a penalty of INR 10 lakhs for every year that you fail to disclose your foreign assets.
• Any non-reporting of foreign assets while filing the ITR is considered a willful evasion of tax, and you might have to face imprisonment of up to 7 years.
• Non-declaration also revokes your right to claim relief under the Double Taxation Avoidance Agreement for your foreign income.

Preventing tax evasion is crucial, but optimizing tax planning can have a significant positive impact on your personal finances. Therefore, it's prudent not to overlook the opportunity to leverage Double Taxation Avoidance Agreements (DTAA) to maximize your tax savings. By strategically utilizing DTAA provisions, you can ensure that you minimize tax liabilities while remaining fully compliant with relevant regulations. This approach not only safeguards against potential legal issues but also allows you to allocate more resources toward achieving your financial goals. For more information on Schedule FA, book our tax consultation.

When it comes to disclosing foreign investments and stocks for tax purposes, there are specific guidelines to follow in India. These investments should be reported in Table A3 under schedule FA in your ITR, and the values of these assets should be declared in Indian rupees after converting them from foreign currency.

However, reporting dividends can be a bit complicated. Dividends should be declared as income from other sources in the year they are paid, and the assessee must pay the applicable tax on dividends. Dividends are taxable in the year they are earned, regardless of whether they are remitted to India or not. In cases where tax has already been withheld in the foreign country before the dividend is paid, you can claim this tax as a deduction while filing your Income-tax Return in India to avoid double taxation.

For taxpayers who hold foreign assets, the income tax return form requires disclosure of assets held at any time during the calendar year. For instance, if you are filing an Income Tax Return for the assessment year 2023-24, you must disclose all the foreign assets you held from 1st January 2022 to 31st December 2022, as most countries follow the calendar year for assessment, unlike India, where the financial year beginning from 1st April to 31st March. i.e., if you have purchased foreign stocks in March 2022, they still need to be declared in Schedule FA in FY23.

Moreover, stock or any asset acquired between January 2023 and March 2023 will no longer be required to be disclosed in the current ITR filing.

Irrespective of the slab rate applicable, you must file an ITR if you hold any foreign asset at any time in the financial year.

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