Introduction

The government of India is trying to build a transparent taxation system and curb corruption. Indian revenue authorities are creating a mechanism for tracking income from different sources that include offshore/foreign income also. The authorities have also modified the income tax return (ITR) forms to notify about the income from outside.

Note: A new schedule called FSI is also introduced in the relevant ITR forms, where an individual is required to report income earned abroad separately.

Income from abroad should be bifurcated that to which provisions of tax treaty it is applied. A Tax Identification Number (TIN) should be mentioned tax is paid in a foreign country. If the TIN is not mentioned then passport number of the taxpayer is required.

Offshore matters

Any asset outside the country is called offshore assets and income from those assets is called foreign income. These assets include:

  • Rental income arising from property situated outside the country.
  • Any Immovable property abroad.
  • Income earned from a foreign bank account or from any investment held outside the country.
  • Foreign income such as foreign pensions, salaries, foreign trades and foreign dividend income.

Deadline of disclosing foreign income and assets

From the 1st May 2017, a taxpayer (both individuals and corporate), will unable to obtain the benefits of a qualifying disclosure in respect of offshore matters/assets.

Benefits of disclosing foreign income before deadline

If a disclosure is made before the 1st May 2017 then the taxpayer can avail of the following:

  • Reduced penalty for tax underpaid.
  • The taxpayer is not subject to publication in the quarterly list of tax defaulters.
  • The taxpayer will not be subject to prosecution.

What if the offshore matter is disclosed after the deadline?

 After 1st May 2017, if a taxpayer is disclosing offshore income then, they will be charged with high penalties. They may not be in a position to avail the benefits of a qualifying disclosure.

Mention the foreign income 

It is important that taxpayers review their returns and ensure that all income, particularly offshore income is reported in their tax returns with all proofs. File Schedule FA i.e., Details of Foreign Assets and Income from Any Source outside India.

Guidelines to be followed:

  • This schedule is filled by the resident assessee/NRI, not by a ‘not ordinarily resident’ or a ‘non-resident’.
  • Schedule FA need to be filled in the following cases as follows:
  1. A beneficial owner who has provided directly/indirectly the future/ immediate benefit.
  2. A beneficiary who derives an immediate/future benefit, directly/indirectly.

In the both the cases, the assessee is both a legal owner and a beneficial owner.

  • A peak balance in the bank account during the year is to be filled up after converting the same into Indian currency.
  • In column 5 of schedule FA
  1. Part C (in column 5): fill the column as an investment at cost in immovable property held during the year, convert to Indian currency.
  2. Part D (in column 5): fill the column as peak investment (at cost) held during the year after and convert to Indian currency.
  3. Capital Assets should include financial assets that are not included in part (B), but should not include stock-in-trade and business assets which are included in the Balance Sheet.
  • The details of peak balance/investment in the accounts in which you have signing authority and which has not been included in Part (A) to Part (D) mentioned above has to be filled up as peak investment/balance held during the year after converting it into Indian currency.

Schedule FA form

foreign income

foreign income

Conclusion

Such disclosure requirements are aimed by the Government to find out the unaccounted assets/wealth held by Indian residents abroad and not paying any tax on it. This decision will help the government to curb corruption and will increase the taxpayers also. NRI‘s should keep this change in mind and file the ITR on time and disclose the foreign income also.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.