Since the deadlines for filing belated and revised returns have passed, we’re seeing a rise in queries around ITR-U, particularly from taxpayers who missed declaring foreign assets.
Under Indian tax laws, if you hold any foreign assets, you are required to disclose them in Schedule FA while filing your income tax return. This includes bank accounts, shares, ESOPs, RSUs, and other assets held abroad.
It’s also common for taxpayers to miss reporting certain types of income, especially ESOPs or RSUs from foreign employers. There may also be tax implications, depending on when the shares are vested, exercised, or sold.
We’ve covered the taxation on receipt of ESOPs and RSUs in detail.
What happens if you don’t declare foreign assets?
If you don’t declare foreign assets in the ITR, the income tax department may treat them as an Undisclosed Foreign Asset under the Black Money Act.
This can attract a penalty of up to ₹10 lakh per asset, irrespective of its value or whether any income was earned from it. So, if you missed declaring foreign assets, you still have an option to correct this by filing ITR-U.
How can ITR-U help?
If you missed filing your ITR or failed to report certain income, and the deadlines for revised and belated returns have already passed, you can file an ITR-U (Updated Return) to correct your return and pay any additional tax.
You can file ITR-U when:
- You haven’t filed your return at all, or
- You filed your return but missed reporting taxable income
If you received a tax refund from your original return, you must effectively pay it back as part of your tax computation when you file an ITR-U.
For foreign assets, additional tax applies only if there is unreported taxable income, as ITR-U is primarily meant for cases where there’s an extra tax payment.
ITR-U can be filed only if it increases your tax liability. If you only missed disclosing a foreign asset but had no additional income, filing ITR-U may not be permitted, since there is no extra tax payable. Also, you cannot use ITR-U to claim a refund or reduce your tax liability.
What’s the additional tax payable under ITR-U?
For example, if you received RSUs from a US-based employer and did not report the income in the ITR, you’ll be required to pay tax on it.
However, if the income was already reported in your ITR, there would be no additional tax.
This allows taxpayers who missed reporting foreign income to correct their tax return and pay the due tax through ITR-U. It’s advisable to make the tax payment as soon as possible, since the tax rate increases over time.
You can check the table below showing the additional tax rates payable under ITR-U based on the time elapsed since the end of the relevant assessment year:
If you have any questions, feel free to ask below.