Reporting foreign income in income tax return: How to report foreign income, equity share in ITR form (2024)

Income-tax Return (ITR) Forms 2 and 3 contain Schedule FA for reporting foreign assets, income and beneficial ownership. This Schedule is often considered one of the most challenging sections to fill out in the ITR form.
Schedule FA was introduced to address tax evasion and money laundering and has been essential to the ITR forms since FY 2011-12 (AY 2012-13). In this schedule, individuals (ordinarily resident in India) must provide information about their foreign assets and income, regardless of whether the income is taxable in India. Non-resident individuals (NRIs) or Not-ordinarily resident individuals (NOR) do not need to make any disclosures in this Schedule.

Individuals with foreign assets and income are required to use either ITR 2 or ITR 3 forms to file their tax returns, as Schedule FA is available in these forms.

Disclosures required

The following details are required to be disclosed in Schedule FA:

• Income from any source outside India, such as dividend, interest, or capital gain.
• Any asset held outside India, including shares, debentures, life insurances, annuity contracts, immovable property such as a house property or other capital asset.
• Financial or beneficial interest in any overseas entity. For instance, if you are a partner in a partnership or firm located overseas or if you are a beneficiary of a private trust based in another country.
• Signing authority in any bank or trading account located outside India.
• Reporting in this schedule is mandatory regardless of the asset's ownership type, whether legal or beneficial.

Relevant period for disclosure

You must report any foreign assets or income from the calendar year 2023 (January 1, 2023 to December 31, 2023) when filing your tax return for the FY 2023-24 (AY 2024-25). It should be noted that though disclosure in Schedule FA is for the calendar year, the taxable income shall be computed based on the financial year. This means that the income earned in the financial year 2023-24 (April 1, 2023 to March 31, 2024) shall be offered to tax, but for disclosure, in Schedule FA, the calendar year 2023 shall be followed in the ITR for the FY 2023-24.

Consequences of not reporting foreign assets, income

The enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ('Black Money Act') reinforced the obligation for Indian residents to disclose such foreign assets and income.

Under the Black Money Act, if you have assets or income from foreign sources, you must accurately and promptly file your ITR.

Failure to provide accurate information in Schedule FA can result in a penalty of Rs 10 lakh. Additionally, the individual may face imprisonment for six months to seven years, along with fines. The Mumbai Tribunal, in the case of Shobha Harish Thawani v. Joint CIT, has upheld the levy of a penalty of Rs 10 lakh for each assessment year for non-disclosure of foreign assets in the ITR Schedule FA for the assessment years 2016-17 to 2018-19.

Steps to report foreign income in ITR form

Using an example, let's understand how to report income or asset details in Schedule FA.
Mr. A is a resident of India. In March 2023, he opened a trading account with an Indian broker to make investments in shares listed on the NASDAQ (US stock exchange). To make such an investment, the Indian broker opens his Trading Account with a USA broker company and a savings bank account with an Indian Bank (Federal Bank) to facilitate deposits in the USA Trading Account. To trade on the NASDAQ, he first has to deposit money in his Federal Bank account, which is then transferred to his USA Trading Account. He made an initial deposit of Rs 20 lakh in his USA Trading account. He made another deposit of Rs 40 lakh on August 1, 2023, into his account.

He acquired shares of Google, Meta, Amazon and Nvidia during the relevant period . He also earned dividend income from these shares . Here is how these transactions will be reported in Schedule FA of the ITR form.

Schedule FA has 10 Tables for reporting different foreign assets and incomes. In this case, Tables A2 and A3 of the ITR form are relevant for reporting, namely:
" Table A2: Details of Foreign Custodial Accounts held (including any beneficial interest) at any time during the calendar year ending as on December 31, 2023. Here an individual will be required to report details of deposits transferred from the Federal account into the USA trading account and the deposits made directly or through the dividend earned from the shares.
" Table A3: Details of Foreign Equity and Debt Interest held (including any beneficial interest) in any entity at any time during the calendar year ending as on December 31, 2023. Here an individual will be required to report shares held as on December 31, 2023.

The financial transactions done by Mr. A shall be reported in Table A2 as under:

1. The sum received on account of the transfer of shares of Amazon, i.e., Rs 24 lakhs and dividend of Rs. 30,000, is also considered for computing the peak and closing balance.
2. The closing balance of Rs. 49.30 lakhs consists of Rs. 25 lakhs remaining after investment in shares of Amazon, plus Rs. 24 lakhs received after transferring the shares of Amazon, and plus Rs. 30,000 (Rs. 10,000 and Rs. 20,000) of dividend received on 31st March 2023 and 16th September 2023.
3. Table A2 requires reporting of the amount paid or credited to the account, which can be in the nature of interest, dividend, proceeds from sale or redemption of financial assets, etc. In the present case, it should be Rs. 24 lakhs from sale of shares of Amazon and dividend of Rs. 30,000 received from Google and Meta in the Calendar Year 2023. Dividend received from Nvidia shall be reported in the next ITR because it has been received in the Calendar Year 2024. However, such dividend income shall be considered for computation of the taxable income because it has been earned during the relevant previous year. It must be noted that the Dividend income of Rs. 10,000 from Google should not be considered for computation of taxable income in the ITR as it pertains to the preceding Financial Year i.e., FY 2022-23 (AY 2023-24).

The financial assets held by Mr. A shall be reported in Table A3 as under:

1. No reporting shall be made for the investment in Nvidia because it has been made in calendar year 2024. However, dividend income earned from Nvidia shall be considered for the computation of the taxable income because it has been earned during the relevant financial year.
2. When reporting the peak balance of foreign shares in Schedule FA in the ITR forms, you should consider the market price of the investment. The peak balance can be found in the Schedule FA Report generated by the broker's app used to invest in the USA Listed companies.
3. Dividend income earned from Google shall be reported in this table because it has been earned in the calendar year 2023. However, such dividend income shall not be considered for the computation of the taxable income because it has been earned during the preceding financial year.
Taxability of foreign income
Schedule FA in the ITR form requires the disclosure of specific assets, rights, and income, but it doesn't change how the income is taxed. Income generated from assets outside India will be subject to taxation according to the applicable provisions of the Income Tax Act.
However, the dividend income received during the last quarter of FY 2023-24 (between January 1, 2024, and March 31, 2024) will be subject to taxation for individuals, even if it is not disclosed in Schedule FA. Therefore, the dividend income of Rs 30,000 will be disclosed in Schedule FA, and the dividend income of Rs 80,000 will be subject to tax in the assessment year 2024-25.

Conversion into INR

The information in Schedule FA must be reported after converting the investments and income into Indian currency. This conversion should be done according to the following guidelines:

* TTBR = Telegraphic Transfer Buying Rate

(By CA Naveen Wadhwa, Vice President, Taxmann and CA Manila Mehta, Assistant Manager, Taxmann)