Report foreign income, assets in ITR by December 31, 2024 or Rs 10 lakh penalty can apply: Income Tax Department

As the year draws to a close, the Income Tax Department of India has issued a stern reminder to taxpayers holding foreign income or assets: declare them in your Income Tax Returns (ITR) by December 31, 2024, or face penalties of up to ₹10 lakh under the stringent provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This advisory underscores the importance of timely and accurate foreign income reporting to ensure compliance with Indian tax laws.

In this blog, we’ll delve into what foreign income reporting entails, why it is essential, and the consequences of non-compliance.

What is Foreign Income Reporting?

Foreign income reporting refers to the disclosure of all earnings, investments, and assets held outside India in an individual’s Income Tax Returns. This requirement applies to:

1. Resident Individuals: Required to report global income, including foreign assets.
2. Non-Resident Indians (NRIs): Must disclose income earned within India, but foreign assets are excluded.

For residents, the reporting includes:

• Foreign bank accounts.
• Immovable property abroad.
• Foreign shares or bonds.
• Any income earned overseas.

Deadline and Penalty for Non-Compliance

The deadline for filing ITR and declaring foreign income and assets is December 31, 2024. Non-compliance could lead to:

1. Penalty of ₹10 Lakh: Applicable for failure to disclose foreign assets or income under the Black Money Act.
2. Prosecution: Imprisonment ranging from 6 months to 7 years.
3. Reassessment of Income: Tax authorities may reassess income from earlier years.

The penalties aim to deter tax evasion and ensure transparency in international financial dealings.

Why Has the Government Issued This Advisory?

The advisory aligns with India’s commitment to combating tax evasion and black money. With enhanced global cooperation and agreements under the Common Reporting Standard (CRS) framework, tax authorities can access financial data from over 100 countries. This proactive sharing of information increases the likelihood of detection for non-compliance.

How to Report Foreign Income in ITR?

Foreign income reporting involves the following steps:

1. Choose the Correct ITR Form:

   • ITR-2: For individuals with foreign assets but no business income.
   • ITR-3: For individuals with foreign income and business income.

2. Fill Schedule FA (Foreign Assets):
   This section requires details of:

   • Bank Accounts: Include account numbers, balances, and country of operation.
   • Foreign Property: Specify ownership details and valuation.
   • Investments: Disclose shares, bonds, and other foreign securities.

3. Report Income in Schedule FSI (Foreign Source Income):

   • Mention the source and country of origin.
   • Claim relief under Section 90/91 if applicable.

4. Cross-Verification:
   Ensure the data matches with records from foreign institutions and CRS reports.

Key Considerations for Taxpayers

1. Double Taxation Avoidance Agreement (DTAA):
   India has DTAA agreements with various countries to prevent double taxation. Taxpayers can claim relief on foreign income to avoid paying tax twice.

2. Exchange Rate for Reporting:
   Foreign income should be converted into INR using the exchange rate provided by the Reserve Bank of India (RBI).

3. Supporting Documents:
   Maintain proof of income, investments, and valuations. These may be required for verification.

The Black Money Act: A Closer Look

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was introduced to curb tax evasion and undisclosed wealth abroad. Under this act:

• Undisclosed foreign income is taxed at 30% without exemptions.
• A penalty of 3 times the tax liability applies.
• Stringent legal consequences deter deliberate evasion.

Consequences of Non-Compliance

Failure to report foreign income can result in:

1. Seizure of Assets: Authorities may confiscate undisclosed foreign assets.
2. Reputation Damage: Public disclosure of violations harms the taxpayer’s credibility.
3. Legal Battles: Non-compliance could lead to prolonged litigation and increased financial burdens.

Steps to Avoid Penalties

1. File Timely ITR:
   Ensure you meet the December 31 deadline to avoid penalties.

2. Seek Expert Advice:
   Taxpayers with complex foreign holdings should consult a tax professional.

3. Update Financial Records:
   Regularly review and update foreign financial data to ensure compliance.

4. Monitor Notifications:
   Stay informed about changes in tax regulations through official advisories.

Case Studies: Lessons from Past Non-Compliance

1. High-Profile Cases:
   Several instances of undisclosed foreign income have resulted in hefty penalties and public scrutiny, emphasizing the importance of compliance.

2. Global Crackdowns:
   International cooperation has led to successful investigations into offshore accounts and assets.

Conclusion

The Income Tax Department’s advisory serves as a crucial reminder for taxpayers to disclose foreign income and assets in their ITR by December 31, 2024. With stringent penalties under the Black Money Act and improved global financial transparency, non-compliance is a risk no taxpayer should take.

By adhering to the guidelines, taxpayers can avoid legal complications and contribute to a transparent financial ecosystem. Remember, timely reporting not only safeguards your financial interests but also ensures compliance with India’s tax laws.