As India becomes more connected to the global economy, it’s essential for taxpayers to disclose their financial holdings and any income earned abroad.
The Income Tax Department has taken to Twitter to request taxpayers holding foreign bank accounts or assets, as well as those receiving income from abroad, to fill Schedule FA in their Income Tax Return (ITR) for AY 2023-24.
So, what exactly is Schedule FA?
If you’re a taxpayer in India and you have foreign assets, the Income Tax Department wants to know about them. Schedule FA is the form you use to report these assets.
Foreign assets can include things like bank accounts held outside India, properties owned abroad, investments in foreign companies, RSUs or ESOPs received from employers outside India, or any other financial assets situated outside the country.
The ITR Forms for FY 2022-23/ AY 2023-24 have changed to simplify things for taxpayers. They replaced the term “accounting period” with something more straightforward - “calendar year ending as on 31st December 2022.”
What does that mean? It means that when you file your return for the AY 2023-24, you need to provide details about any foreign assets you held between 01-01-2022 and 31-12-2022. It doesn’t matter if the foreign country follows a different fiscal year. As long as you had the specified foreign assets on 31-12-2022, you need to report them. This change eliminates any confusion or miscalculations about the reporting period.
Why is Schedule FA important?
Schedule FA’s purpose is to ensure taxpayers disclose their foreign assets and comply with Indian tax laws. It helps the Income Tax Department keep track of their global financial holdings.
In addition to the above, the taxpayer can also avoid paying double tax on the same income by claiming relief under the DTAA (Double Taxation Avoidance Agreement).
Who needs to report in Schedule FA?
Reporting in Schedule FA is mandatory for a taxpayer who is a resident of India. This schedule is not required to be filed by a taxpayer who is a non-resident (NR) or Not ordinarily Resident (NOR).
What is the penalty for the non-disclosure of Schedule FA in your ITR?
Failing to report your foreign assets accurately or not disclosing them at all can lead to some serious consequences such as:
- A penalty of ₹10 lakhs under the Black Money and Imposition of Tax Act, 2015.
- Not disclosing foreign assets in Schedule FA while filing your ITR is considered a willful attempt to evade taxes. This can lead to imprisonment for up to 7 years.
- Non-declaration also revokes your right to claim relief under the DTAA for your foreign income.
So, to ensure you stay on the right side of the law and avoid these penalties, file your ITR and correctly report schedule FA for FY 2022-23/AY 2023-24 before 31st July 2023.