Having your feet up after filing tax returns earlier this year? We hope you didn’t miss out on furnishing details of foreign income and foreign assets when you filed your income tax return (ITR). If you did, don’t panic. The tax department recently rolled out a reminder that such a lapse can be rectified by revising your ITR before December 31. Read on to find out more.
The issue
It may so happen that certain resident taxpayers, earning income from a foreign source — such as dividend from foreign companies, may not have disclosed such income in schedules of the ITR that deal with foreign income and foreign assets. They are schedules FA (foreign assets), FSI (foreign source income) and TR (tax relief). The primary reason is that taxpayers lack awareness and technical clarity on the subject. For instance, let’s take the case of a resident taxpayer who has just salary and interest income in a particular financial year. Say, he also owns shares of a foreign company, but has not earned dividend from that company in that FY. He may be of the notion that he has to file a simple ITR-1. However, as per the income tax law, the mere fact that he or she owned foreign assets (shares of foreign company here) will make him/her liable to file ITR-2 and fill out schedule FA (foreign assets). Whether income from such assets is earned or not is immaterial.
Taxpayers might also be of the notion that since they have received foreign income net of withholding tax, there would not be a necessity to disclose such income and pay taxes in India. Whether such income will be taxed again in India (double taxation) is a different subject altogether, to be decided after consulting DTAAs (double taxation avoidance agreements between India and the foreign countries) and foreign tax credits. Nevertheless, the fact is that for a resident assessee, foreign income will also form part of total income and to be disclosed in the schedule FSI.
Where to disclose
If you need to file a revised return, here are the schedules in the return form that you should focus on. Schedule FSI seeks head-wise (salary, rental, dividend, etc.) disclosure of foreign income (converted to rupees), taxes thereon paid outside India and details of tax relief claimed in accordance with DTAA or foreign tax credit provisions.
Furnishing Form 67 is a pre-requisite for this schedule. This is the form which enables an assessee to claim relief from double taxation. One would need a certificate that shows payment or deduction of foreign tax to back the form.
Schedule TR is a rather simple schedule that seeks country-wise summarised declaration of taxes paid there and the respective tax relief claimed.
Schedule FA seeks details of foreign assets which include depository accounts, custodial accounts, equity/ debt securities, insurance contracts, financial interest in a foreign entity (such as partnerships), and immovable properties, among others. Again, it does not matter whether income is earned or not from such assets during the FY. It is ownership that determines disclosure. Peak value, closing value as of December 31 (since the FA schedule is on a calendar year basis) and gross income credited are common details sought vis-à-vis depository accounts, custodial accounts and equity/ debt securities. Additionally, the schedule seeks cost of investment in case of securities, financial interest in foreign entities and immovable properties and surrender value in case of insurance policies.
Implications of negligence
The IT department already has information about an assessee’s foreign source income via agreements with foreign jurisdictions to share information such as the CRS (Common Reporting Standard) of the OECD and FATCA of the US (Foreign Account Tax Compliance Act). “Failure to furnish the above schedules can have penal implications for the taxpayer”, says Sudhakar Sethuraman, Partner, Deloitte India. He adds, “There would be a flat penalty of ₹10 lakh under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This is irrespective of the value of foreign source income (small or large) and the fact whether any income is earned from the foreign asset during the financial year. And under the Income Tax Act, 1961, such omission will be considered as wilful tax evasion and could lead to penalty or imprisonment, though it depends on the gravity of the situation. Penalty under the IT Act is not as onerous as the Black Money Act, though.” You can avoid these hassles if you file a revised return by December 31.
How to go about them
While filling the schedules can be quite straightforward, concepts like claiming double taxation relief in Form 67 and foreign currency conversion rates will be alien to a lot of taxpayers. That sure calls for seeking assistance from qualified experts, especially when the stakes are high in case of non-compliance.
“As far as documents are concerned, one would just need basic statements to fill the schedules such as from a bank or broker and title deeds, and are not quite different from the kind of documents required to furnish details of domestic income. Also, the schedules do not ask for attachment of any document,” says Sethuraman.