Enhancing Tax Transparency on Foreign Assets & Income — What Every Indian Taxpayer Must Know (2025)

1. Introduction — Why Global Income Disclosure Matters

In the era of globalized finance, mere domestic earnings are no longer the only basis for income tax. Under international frameworks such as Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA), foreign financial institutions abroad report account information of foreign-residents to their local tax authorities. For Indian residents, such information reaches the Income Tax Department under automatic information exchange. Consequently, India receives data about foreign bank accounts, investments, dividends, income abroad — making disclosure of foreign assets and foreign income mandatory in Indian tax returns. Failure to disclose can have serious tax and legal consequences.

This guide explains in detail the disclosure obligations, mechanism, relevant return schedules, and compliance best practices for Indian residents having any foreign assets or foreign-source income.

2. What are CRS and FATCA — Key Concepts Simplified

• CRS (Common Reporting Standard): An international standard under which member countries automatically exchange financial account information of residents. Banks and financial institutions abroad report foreign account details of individuals to their home country’s tax authority, which is shared with India if the account holder is Indian resident.

• FATCA (Foreign Account Tax Compliance Act): A law that requires foreign financial institutions worldwide to report accounts held by U.S. citizens or residents. Under international agreements, this information is shared globally — but even non-U.S. accounts may be scrutinized for transparency obligations under CRS regimes.

Through CRS and FATCA data sharing, Indian tax authorities get comprehensive information about foreign bank accounts, investments, dividends, interest, foreign-source income, and ownership of foreign assets.

3. Indian Law Requirements — What Must You Declare in ITR?

Indian tax law mandates that resident taxpayers disclose foreign assets and foreign income while filing ITR. Key schedules/forms:

• Schedule FA (Foreign Assets): For reporting foreign bank accounts, foreign properties, investments, foreign entity holdings etc.

• Schedule FSI (Foreign Source Income): For reporting income earned outside India — interest, dividends, rental income, capital gains, etc.

• Schedule TR (Tax Relief): If you paid tax abroad and want relief under double-taxation treaties / DTAA.

If you have any foreign assets or foreign income, you must choose an ITR form that supports foreign disclosure (ITR-1 and ITR-4 cannot be used). Declare full details accurately — account number, country, type of asset/income, amount, PAN, foreign TIN (if any), etc. If taxes were paid abroad, claim relief via Schedule TR and attach Form 67.

4. What Information is Shared by CRS / FATCA to India

Under the frameworks, Indian residents’ foreign financial accounts are reported by foreign institutions with details like: account holder’s name, address, tax identification number (TIN), nationality, country of residence, controlling person details (if an entity), account number, account balance (peak/closing), and payment events like interest, dividends, redemptions. For entities, details of beneficial owners or controlling persons are also shared — which means even indirect holdings may be traceable.

5. Benefits of Full Disclosure

By accurately declaring foreign assets and income, taxpayers gain:
• Legal compliance and avoid risk of reassessment or prosecution under undisclosed foreign income laws.
• Ability to claim tax credit for foreign taxes paid (through Schedule TR), avoiding double taxation.
• Clean compliance record — useful for visa applications, overseas travel, loans.
• Transparency that builds trust with tax authorities, avoiding notices or inquiries.

6. What Happens If You Fail to Disclose — Risks & Legal Consequences

• The tax department can assess undeclared foreign income / assets and impose additional tax at normal rates.
• Penalties, interest for non-disclosure.
• Legal action under laws dealing with undisclosed foreign income and assets.
• Difficulty in obtaining refunds, clearances, or compliance-based permissions in future.

Hence, even previously undisclosed assets or income should be declared via revised return, if timeline permits.

7. How to Disclose — Filing ITR with Foreign Asset / Income Details (Step-by-Step)

1. Check if your ITR form supports foreign disclosure — avoid ITR-1 / ITR-4 if you have foreign assets/income.

2. Fill Schedule FA — provide full details of foreign bank accounts, investments, property, entity holdings etc.

3. Fill Schedule FSI — declare foreign-source income under correct head (interest, dividend, capital gains, etc.).

4. If foreign tax was paid, claim relief in Schedule TR — attach Form 67.

5. If you missed earlier years, file a revised return (as per law) — ensure accurate disclosure.

6. Maintain documentation — account statements, tax paid abroad proof, property deeds / investment proofs, TINs, FX conversion records, etc.

8. Practical Tips & Best Practices for Taxpayers

• Maintain a tracker of all foreign account and asset details — account numbers, countries, balances, yearly income.
• Reconcile foreign statements annually before ITR filing.
• Convert foreign amounts to INR using correct exchange rate as per law and maintain conversion records.
• Engage a trusted CA or tax professional if foreign income/assets are substantial — compliance burden increases.
• If planning sale or transfer of foreign assets / investments — evaluate capital gains tax and disclosure obligations.
• For foreign-resident family members or remittances — consider declaration requirements, TIN details, tax relief eligibility, and DTAA provisions.

9. Who Should Read This Guide

• NRIs returning to India or Indian residents holding foreign bank accounts, investments, property abroad.
• Professionals, freelancers, consultants earning foreign income.
• Tax practitioners / CAs / accountants with clients having foreign assets/income.
• Startups & companies receiving foreign investment, profits abroad, or shares of foreign entities.

10. Conclusion

In 2025, with CRS and FATCA information sharing in full force, non-disclosure of foreign assets or income is no longer a safe option. Honest declaration through ITR, availing tax reliefs under DTAA, and maintaining proper documentation is necessary for compliance. Proper disclosure not only ensures legal safety, but also optimizes tax liability and preserves compliance integrity.

Original PDF:
https://www.incometax.gov.in/iec/foportal/sites/default/files/2024-11/Enhancing%20Tax%20Transparency%20on%20Foreign%20Assets%20and%20Income.pdf