Simply calculating your taxable income and income tax payable, and paying the exact amount of your income tax liability is not the end of your income tax obligations. You also need to ensure that your return of income is properly filled and filed on time. One of the important aspects of income tax return that you need to pay attention to is Schedule FA, disclosures related to foreign assets.
This schedule is to be filled by all persons who are resident and ordinarily resident in India during the year. It is not required to be filled by non-residents or persons who are resident in India during the year and are not ordinarily resident.
Ordinarily, the persons who would be required to make disclosures under this Schedule would be persons who have made investments abroad or have acquired assets using the liberalized remittance facility, employees who have been granted stock options and who have invested in foreign companies. Shares allotted, NRIs who have returned to India and retained assets abroad, as well as expatriates who have been in India for more than two years and have therefore become resident and ordinarily resident in India.
The purpose of this schedule is to compare information received from the US and other jurisdictions under FATCA and Common Reporting Standards (CRS), which provide Indian tax authorities with details about individuals with Indian connections holding financial and other assets in those territories. Huh.
It is possible that you may have acquired foreign assets through an Indian intermediary. For example, you may have acquired shares of foreign companies through transactions facilitated by your local bank, or you may have obtained online crypto-currencies.
Shares of a foreign company, or units of a foreign mutual fund, are treated as foreign assets, regardless of who they were purchased from. Crypto-currencies stored in foreign crypto-wallets will also be considered foreign assets. However, if you hold shares in an Indian mutual fund that has invested in shares of foreign companies or foreign exchange-traded funds, the units you hold in the Indian fund will be treated as domestic assets and not foreign assets.
One thing to note is that you also need to mention the country in which the property is kept. It is not necessarily the same country in which the property was acquired. For example, if you own shares of a US company acquired on the Singapore Stock Exchange, the country in which the assets are held would have to be disclosed as USA, not Singapore. This is because it is the US company that will report the fact of being an Indian shareholder under FATCA.
An interesting aspect is that the foreign assets have to be disclosed as compared to the previous calendar year. So, if you have acquired a foreign asset after December 31, 2021, it need not be disclosed in the return of income filed by you for the financial year 2021-22, but in the tax return of the next year. Again, this requirement stems from the fact that reporting under both FATCA and CRS is done on a calendar year basis and not on the basis of the Indian year of taxation from April to March. Hence, it will facilitate comparison of the information received under FATCA/CRS by the Indian tax authorities with the information provided in the income tax return.
The language used in the schedule is a bit confusing. There is reference to depository accounts and custodial accounts. Depository account does not mean a demat account in a depository but is deposited with any financial institution. These terms are the same as those used under FATCA/CRS, basically refer to deposits held by financial institutions and financial assets held by depository/portfolio managers for clients.
Another aspect to be kept in mind is that in case of foreign retirement accounts, where the income is taxable abroad on retirement, while one can choose to pay tax on withdrawals in India also, the foreign retirement account balance The amount as well as the income earned during the calendar year need to be disclosed in Schedule FA.
Great care needs to be taken in filling up Schedule FA, as summons are being sent by the tax authorities to verify whether the foreign assets, the details of which have been received by them under FATCA/CRS, have been disclosed by the taxpayer or No. Failure to disclose a foreign asset can be fined as much as 10 lakh, under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, though the foreign asset may have been earned from the disclosed income.
Gautam Nayak is a Partner at CNK & Associates LLP.
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