Income Tax Return: Declaration of Foreign Bank Accounts

Introduction

In today’s interconnected global economy, many Indian residents maintain financial interests and bank accounts outside the country. Indian tax laws mandate detailed disclosure of such foreign assets and income. Non-compliance—whether intentional or accidental—can lead to penalties, investigations, and legal action under legislations such as the Black Money (Undisclosed Foreign Income and Assets) Act. This article offers a straightforward, step-by-step guide to help you understand the requirements for reporting foreign assets and filing your income tax return in India.

Who Is Required to Declare Foreign Assets?

Resident Taxpayers

Individuals who qualify as “residents” under the Indian Income-tax Act must report any foreign assets, income from overseas sources, and foreign bank accounts in their Income Tax Returns (ITRs). This includes ownership or beneficial interest in:

Foreign bank accounts
Shares and securities
Bonds and deposits
Immovable properties
Signing authority in foreign accounts

Not Ordinarily Resident (NOR) & Non-Resident (NR)

Taxpayers classified as “not ordinarily resident” or “non-resident” are generally not required to complete the Foreign Assets (FA) schedule. However, it is critical to assess your residential status every financial year, as disclosure obligations depend on this classification.

Key ITR Schedules for Foreign Asset and Income Disclosure

When filing an ITR in India, especially for individuals holding foreign assets or earning overseas income, the following schedules are crucial for accurate compliance:

1. Schedule FSI – Foreign Source Income

Purpose: To declare all income earned from foreign sources.

What to Report: Every instance of income accruing or arising outside India.
Income Classification: Ensure that this income is reflected under the correct income head (Salary, Capital Gains, etc.) when calculating total income.
Country Code & TIN: Mention the ISD code of the country and the Taxpayer Identification Number (TIN). If TIN is not available, the passport number may be used.
DTAA Relief: If tax has been paid in a foreign country, identify the relevant Double Taxation Avoidance Agreement (DTAA) article and file Form 67 to claim foreign tax credits.

2. Schedule TR – Tax Relief

Purpose: To claim tax relief for foreign taxes paid.

Details Required:
- Country code and TIN (same as in Schedule FSI)
- Total tax paid overseas
- Relief claimed under Section 90, 90A, or 91
Consistency Check: Ensure data matches with Schedule FSI for seamless processing and accurate relief.

3. Schedule FA – Foreign Assets

Who Must File: Only resident taxpayers are obligated to complete this schedule.

What to Declare:

Foreign bank and custodial accounts
Shares, securities, and bonds
Insurance policies with cash value
Foreign real estate
Financial interests and trust relationships (as trustee, beneficiary, or settlor)
Any signing authority over foreign accounts
Other foreign-sourced income not reported elsewhere

Reporting Period: Based on the calendar year ending December 31st preceding the assessment year. For Assessment Year (AY) 2024–25, you must report details from January 1, 2023 to December 31, 2023

Reporting Foreign Assets and Accounts in the Income Tax Return

Resident taxpayers in India who own foreign assets or earn income from abroad must disclose these details in the Foreign Asset (FA) Schedule of their Income Tax Return (ITR). Below is a structured overview of the specific reporting tables and what needs to be included.

Table A1: Foreign Depository Accounts

Report any savings, current, or deposit accounts held with banks outside India.

Details to provide:
- Highest balance during the calendar year
- Balance as on December 31st
- Interest or other income earned from the account
  This ensures full disclosure of both the extent and the income potential of your overseas bank holdings.

Table A2: Foreign Custodian Accounts

Disclose details of foreign-held securities (e.g., shares, bonds) maintained in custodian accounts.

Details to provide:
- Maximum value during the year
- Year-end value (as on December 31st)
- Any dividends or interest income received
  This helps depict your investment activity and returns from overseas custodial holdings.

Table A3: Foreign Equity and Debt Investments

For direct ownership of foreign stocks or bonds:

Details to provide:
- Initial investment amount
- Peak value during the year
- Closing value on December 31st
- Any income (dividends, interest) or capital gains from sales
  This table outlines your direct foreign investments and their financial performance.

Table A4: Foreign Insurance or Annuity Contracts

Disclose life insurance policies or annuity contracts held overseas.

Details to provide:
- Surrender value as on December 31st
- Any credited additions or income during the year
  These details reflect the monetary value and benefits received from such contracts.

Table B: Financial Interest in Foreign Entities

Include ownership or interest in any foreign business, partnership, or entity.

Details to provide:
- Value of your interest
- Any share of profits, dividends, or other income received
  This establishes your involvement and earnings from international business ventures.

Table C: Foreign Immovable Property

Disclose real estate holdings abroad, such as homes, apartments, land, or buildings.

Details to provide:
- Market value of the property
- Rental income or other earnings from it
  Transparency here helps depict the full scope of your overseas real estate portfolio.

Table D: Other Foreign Capital Assets

Include foreign assets not covered in other tables—such as valuable collectibles, precious metals, or alternative investments.

Details to provide:
- Asset type and valuation
- Any income derived from them
  This ensures that all capital assets of financial value abroad are fully reported.

Table E: Signing Authority in Foreign Accounts

Declare any foreign bank or financial accounts where you have signing authority, even if you’re not the account holder.

Details to provide:
- Account type and location
- Period of signing authority
  This provides clarity on your role in managing foreign funds or assets.

Table F: Interests in Foreign Trusts

Disclose any role (settlor, trustee, or beneficiary) in a trust established outside India.

Details to provide:
- Nature of your interest or role
- Any distributions or income received
  This ensures full disclosure of assets and income linked to foreign trust structures.

Table G: Other Foreign-Sourced Income

Report any foreign income not covered in the above categories.

Examples:
- Consultancy fees from international clients
- Freelance income or digital services rendered abroad
  This ensures no foreign income is omitted from the return

Conversion of Foreign Values to INR

All foreign values—balances, investment worth, and income—must be converted to Indian Rupees using the Telegraphic Transfer Buying Rate of the State Bank of India (SBI) as of the relevant date. This standardizes currency reporting and maintains consistency.

Why Accurate Disclosure Matters

Legal Compliance: Full and correct reporting ensures adherence to Indian tax laws and avoids penalties under the Black Money (Undisclosed Foreign Income and Assets) Act.
Tax Relief: Proper disclosure enables you to claim Double Taxation Avoidance Agreement (DTAA) benefits for taxes paid abroad, avoiding dual taxation.
Reduced Scrutiny: Transparent filing reduces the risk of income tax scrutiny and facilitates smoother assessments.

Keeping your foreign assets and income accurately reported helps you stay compliant, reduce tax risks, and maintain financial transparency