Non-reporting of foreign shares and other foreign assets held by you in your income tax return (ITR) can cost you a lot of money. An individual can be held liable for violation of the Black Money Act, 2015.
Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 requires a resident individual to provide information of his foreign assets located outside India in the ITR. If he fails to do so the Assessing Officer may levy a straight penalty of Rs 10 lakh on such person. It is essential to understand that section 43 mandates the disclosure of foreign assets in ‘Schedule FA’ in the relevant ITR form. Simply reporting income from foreign assets in the ITR form without disclosing the assets in Schedule FA will not be considered as fulfilling the disclosure requirement.
If an individual has purchased virtual digital assets (VDAs) from international exchanges and also storing them in foreign wallets then they have to file schedule VDA and Schedule FA both.
However, an individual investing in an Indian- origin scheme which has a foreign investment mandate like Indian mutual funds investing in US, Taiwan, etc., then schedule FA is not required to be filed.
Discretionary powers of income tax department
The income tax department has discretionary powers to decide under which law, a taxpayer must be prosecuted for non-disclosure of foreign assets in ITR. If the individual can prove to the tax department that the mistake was unintentional and not with the intent to evade taxes, the penalty may not be levied.
But if the tax department upon further investigation finds that the individual is not only at fault for non-disclosure of foreign assets in schedule FA but also at fault for tax evasion, black money routing outside India, others, rigorous imprisonment will also be imposed along with penalty. This only happens in extreme cases and not merely for non-disclosure failures.
However, the penalty under section 43 of the Black Money Act shall not apply in instances where the foreign asset in question is one or more bank account having an aggregate balance of up to Rs 5 lakh.
An important point to note here is that this immunity is applicable only for foreign bank account(s). No relief is given if the foreign asset is shares held in a foreign company or other foreign assets.
What information needs to be mentioned in Schedule FA?
The schedule FA in the ITR requires a taxpayer to disclose all foreign assets (including financial interest in any entity) held by him as a beneficial owner or otherwise including the beneficial interest in a Trust, signatory in a bank account (even on behalf of the Company etc.) at any time during such previous year.
An individual should make the following disclosures in Schedule FA:
(a) Any asset held outside India (Shares, Debentures, Life Insurances, Annuity Contract, Immovable Property, or any other capital asset),
(b) Financial or beneficial interest in any overseas entity (partner in an overseas LLP or firm, a beneficiary of a foreign private trust, etc),
(c) Signing authority in any account located outside India (Trading, Depository, Bank, or Custodian Account), and
(d) Income from any source outside India (Dividend, interest, or capital gain).
Any non-disclosure of the above information in the ITR may result in levy of penalty of Rs 10 lakh under Section 43.
