Last updated: December 19th, 2024 6:14 PM

Schedule FA in ITR 2: Disclosure of Foreign Assets in ITR-2 Form

The Panama Paper leaks exposed illegal properties worth over 20,000 crores held by more than 500 Indians, highlighting significant tax evasion through offshore routes. The Black Money Act of 2015 was introduced to combat such illegal practices, and Schedule FA became a crucial role of the Income Tax Return (ITR) Form from the Assessment Year (AY) 2012-13, relevant for the Financial Year (FY) 2011-12. Schedule FA mandates the disclosure of foreign shares, foreign assets, and employee stock options (ESOPs) of foreign companies. This article delves into Schedule FA in ITR-2, its importance, foreign assets to be disclosed, how to fill it, and the applicable penalties for non-disclosure. Fill your Schedule FA in an error-free manner & file the ITR-2 before the due date with IndiaFilings experts!! [shortcode_21]

What is Schedule FA in ITR?

Schedule FA is a part of the Income Tax Return (ITR) form in India specifically for disclosing foreign assets and income. This Schedule FA applies to resident Indians (including those ordinarily resident). It requires you to detail any investments, accounts, or other financial holdings outside India. This includes stocks, mutual funds, bank accounts, and even employee stock options (ESOPs) from foreign companies. The purpose is to promote transparency and combat tax evasion through offshore accounts. Failing to report these assets in Schedule FA could lead to penalties under the Black Money Act.

When was Schedule FA introduced in ITR?

Schedule FA became part of the Indian Income Tax Return process in the Assessment Year 2012-13. This means it first appeared in the ITR forms used to report income for the financial year 2011-12. The introduction of Schedule FA in ITR aimed to increase transparency and prevent tax evasion by requiring resident Indians to disclose details of their foreign assets and income.

What is the Importance of Schedule FA in ITR?

The following points emphasize the importance of Schedule FA in ITR:

• Disclosure of Foreign Assets: It compels taxpayers to disclose any foreign assets they hold, including bank accounts, stocks, mutual funds, properties, or other financial instruments. This helps the Income Tax Department maintain a record of a resident's global financial holdings.
• Combats Black Money: Introduced partly in response to situations like the Panama Papers leak, Schedule FA discourages hiding wealth abroad to avoid taxes. Not reporting foreign assets can be seen as a violation of the Black Money Act, which leads to a penalty.
• Taxation and Double Tax Avoidance: By revealing your foreign holdings, you can ensure proper taxation on any income generated from them. Additionally, it allows you to claim relief under Double Taxation Avoidance Agreements (DTAAs) with other countries, preventing you from paying tax on the same income twice.

Who Should Report Foreign Assets (FA)?

Disclosing foreign assets in Schedule FA is mandatory for a specific group of taxpayers in India. Here's information on who needs to file and the relevant exemptions:

• Residents and Ordinarily Residents (R&OR): This includes individuals with residential status in India for most of the year or for previous years.
• HUFs (Hindu Undivided Families): These family units with a shared income are also obligated to report foreign assets.

The reporting requirement applies if you have any of the following:

• Foreign Assets: This includes bank accounts, stocks, properties, or any financial instruments held outside India.
• Financial Interest: You have a stake in a company or other entity located abroad.
• Signing Authority: You have control over an account maintained in a foreign country.

Beneficial Ownership: The requirement extends to those who hold beneficial ownership of foreign assets, even if they are not the legal owner. This includes situations where you derive benefit from assets held by someone else. Exceptions:

• Beneficiary with Included Income: If you are a beneficiary of foreign assets and the income from those assets is already taxed in the return of the legal or beneficial owner, you might be exempt from filing your own return. (Fifth Proviso to Section 139(1))
• Foreign Citizens with Specific Visas: Foreign citizens classified as R&OR but holding business, employment, or student visas may be exempt from disclosing foreign assets acquired during their non-resident period, provided no income is earned from them currently. (Foreign Citizens' Disclosure Exemptions)

Relevant Period to Disclose Foreign Assets

Disclosing foreign assets in Schedule FA requires understanding the difference between the 'calendar year' and the 'assessment year'. You must report details of any foreign assets held or income earned during the calendar year. This information is then included in your ITR for the corresponding assessment year. For instance, when filing your ITR for 2024-25 (due July-September 2024), you'd report foreign assets and income you had between January 1, 2023, and December 31, 2023. For this calendar year, gather all relevant documents like bank statements, investment records, and property ownership documents to ensure a smooth ITR filing process.

What Foreign Assets must be Disclosed under Schedule FA?

Schedule FA of your ITR requires disclosing a wide range of foreign assets you hold or are interested in during the calendar year. In the table below, we have laid down the foreign assets that need to be disclosed in the ITR-2 form:

Table section	Description	Examples
A1	Foreign Depositary Accounts	Savings accounts, checking accounts, money market accounts held abroad.
A2	Foreign Custodial Accounts	Investment accounts held with a custodian bank outside your country of residence.
A3	Foreign Equity & Debt Interest	Mutual funds, stocks, bonds, and other financial instruments held outside your country of residence (includes beneficial ownership).
A4	Immovable Property (Land & Building) Outside India	Physical property like houses, apartments, or land located abroad.
A5	Cash & Equivalents Outside India	Physical cash, precious metals, jewels, or other easily convertible assets held abroad.
A6	Loans & Advances Given Outside India	Money loaned to individuals or entities outside your country of residence.
A7	Unquoted Equity Shares Held Outside India	Shares in private companies located outside your country of residence.
A8	Investment in Business Outside India	Ownership interest in a business operating outside your country of residence.
A9	Other Foreign Assets or Financial Interest	Any other foreign asset or financial interest not covered above.
A10	Income from Foreign Assets	Income generated from foreign assets (dividends, interest, rent).

Information Required to Report Schedule FA

You must provide detailed information for each asset category when reporting foreign assets in Schedule FA. The specific details required vary depending on the asset type, but generally include:

• Country: The country where the asset is located or held.
• Identifying Information: Details like names, addresses, and account numbers for institutions, entities, or properties.
• Dates: Acquisition date for investments or property and the period for which the information applies.
• Values: Opening, peak, and closing balances or rupee investment values.
• Income Details: Any income derived from the foreign asset, its nature, and tax implications in India.

How to File Schedule FA in ITR?

Disclosing your foreign assets in Schedule FA is crucial to your ITR filing process. Here are the steps involved based on the ITR-2 form:

Step 1: Categorize Your Asset

The first step involves identifying the category under which your foreign asset falls. The ITR form provides a drop-down menu with various asset types. Choose the most relevant category that best describes your holding.

Step 2: Provide Basic Details

Once categorized, you'll need to provide basic information about the asset. This typically includes Name, address, Zip, Country, and currency codes.

Step 3: Detail Investment Values

Here, you'll provide details about the financial value of your asset. This might include:

• Initial Investment Value: The value at the time of acquisition (if applicable).
• Opening Balance: The asset's value at the beginning of the relevant financial year.
• Peak Balance: The highest value the asset reached during the financial year.
• Closing Balance: The asset's value at the end of the financial year.

It's essential to report these values in the original foreign currency and its equivalent in Indian rupees (INR).

Step 4: Report Income and Proceeds

This step involves reporting any income or revenue from your foreign assets during the financial year. This could include:

• Income Earned: Interest, dividends, or any other income derived from the asset.
• Sale/Redemption Proceeds: Any proceeds from selling or redeeming the asset.

Like the investment values, report these figures in foreign currency and INR.

Step 5: Claim DTAA Relief (if applicable)

Double Taxation Avoidance Agreements (DTAAs) exist between India and many countries. You'll need to report the details here if you have claimed any tax relief under a DTAA for income earned on your foreign assets.

Schedule FA in ITR-2 - Sample Format

Here's the section in the ITR-2 form related to the Schedule FA as a reference for you,

Consequences of Not Disclosing the Foreign Assets

Disclosing your foreign assets accurately in Schedule FA is mandatory. Failing to do so can lead to severe consequences, including:

• Financial Penalty: The most common penalty for non-disclosure or misrepresentation of foreign assets is a flat penalty of ₹10 lakhs for each year of non-compliance. This can significantly impact your finances.
• Imprisonment Risk: In severe cases, non-reporting foreign assets can be considered willful tax evasion. This is a criminal offense and could result in imprisonment of up to 7 years.
• Loss of DTAA Benefits: Double Taxation Avoidance Agreements (DTAAs) help avoid paying taxes on the same income in two countries. If you fail to disclose your foreign assets, you lose the right to claim relief under any applicable DTAA, potentially leading to double taxation on your foreign income.

Latest Update:

Update 1: Declare Foreign Income in Your ITR Before Dec 31 to Avoid Penalty!

The Income Tax Department has issued a stern warning for taxpayers: disclose foreign income and assets by December 31, 2024, or risk facing severe penalties under both income tax and Black Money laws. Here’s what you need to know:

• Penalties for Non-Disclosure: If the aggregate value of foreign assets (excluding immovable property) exceeds Rs 20 lakh, a penalty of up to Rs 10 lakh may be imposed.
• Who Must Disclose: Any Indian resident with foreign income or assets, including foreign bank accounts, investments, and properties.
• Where to Disclose: Use the correct Income Tax Return (ITR) form, specifically ITR-2, ITR-3, or ITR-7, as ITR-1 and ITR-4 do not have the necessary schedules (Schedule FA, FSI, TR).
• Deadline: If you haven't filed your return, submit a belated ITR by December 31, 2024. If filed but missing foreign income/assets, revise it by the same deadline.
• What’s at Risk: Failing to disclose foreign income/assets may lead to assessment proceedings under the Black Money Act, and prosecution for inaccurate details. Non-compliance can also trigger double taxation on foreign income.
• Key Schedules for Foreign Income/Assets Disclosure:
  • Schedule FA: Foreign assets and income.
  • Schedule FSI: Income from outside India and tax relief.
  • Schedule TR: Tax relief claimed for foreign taxes paid.

Update 2:  Important CBDT Guidelines on Reporting Foreign Assets & Income

The Central Board of Direct Taxes (CBDT) emphasises that Foreign assets must be reported correctly in the ITR-2 form to avoid fines. The Income Tax Department allows taxpayers to correct any omissions or inaccuracies by filing a revised return. For the A.Y.2024- 25 revised return can be filed upto “December 31, 2024”.

Failing to disclose foreign property can result in a penalty of up to Rs 10 lakh per year. Many high-net-worth individuals who own undeclared properties in Dubai have received notices from the tax authorities. When buying property abroad, it's important to comply with the Foreign Exchange Management Act (FEMA) and the Income-Tax Act. The UAE, being a tax-free zone, often attracts money routed through informal channels like hawala, which is then deposited in Dubai banks and used for property investments. While there’s less scrutiny on cash deposits in Dubai if the sender is a resident Indian, the source of funds could be questioned in India. Indian residents can use the Liberalised Remittance Scheme (LRS) to remit up to $250,000 annually to buy property abroad. For minors, the remittance must be signed by their natural guardian. Proper reporting and adherence to legal requirements help avoid penalties and ensure compliance with Indian tax laws.

Conclusion

Schedule FA in ITR-2 plays a vital role in ensuring transparency and preventing tax evasion on foreign assets held by Indian residents. This includes financial accounts, financial investments, immovable property, foreign trusts, and other capital assets. By accurately disclosing your foreign assets and income in Schedule FA, you can avoid hefty penalties, potential imprisonment, and loss of benefits under Double Taxation Avoidance Agreements. Get expert support from IndiaFilings to file your ITR-2 with accurate Schedule FA details!! [shortcode_21]