Foreign Asset and Income Reporting in India: Key Compliance Requirements

Individuals with financial interests outside India, such as foreign nationals living in India for extended periods or Indians returning after overseas assignments, may have additional reporting obligations in their Indian tax returns beyond just declaring income earned in India. Under Indian tax laws, certain disclosures may be required—particularly concerning foreign assets and overseas income—depending on an individual's residential status and non-reporting of which can even attract penalties of up to ₹1 million under the Black Money Act and increased scrutiny from tax authorities, as evidenced by recent enforcement actions.

Indian tax law determines the extent of reporting obligations and taxability for an individual based on their residential status i.e. whether they qualify as an Ordinarily Resident(ROR), Non-Resident (NR), or Not Ordinarily Resident (NOR).

*Notes:

If an Indian citizen leaves India for employment or as a crew member, the condition of staying in India for 59 days is replaced by 182 days to be considered a resident.
For Indian citizens whose income from Indian sources exceeds INR 1.5 million (15 Lakh) the condition of staying in India for 59 days is replaced by 120 days to be considered a resident.
If an Indian citizen earns more than INR 1.5 million from Indian sources and is not liable to tax in any other country by reason or residence or domicile, they are deemed to be a not ordinarily resident (NOR) even if they fail the basic conditions.

This article provides a comprehensive guide to foreign asset and income reporting requirements, helping individuals ensure compliance with Indian tax laws and avoid unintended non-disclosures.

Key Reporting Requirements

With increasing cross-border movements, many Indians may own assets or earn income abroad through property, bank accounts, investments, or other sources. Similarly, expatriates working in India on long-term assignments may eventually qualify as Ordinary Residents (ROR) under Indian tax laws, requiring them to report their global income and foreign assets.

Given these complexities, it is crucial to understand the reporting obligations that apply to individuals with foreign financial interests. Below are the two key reporting scenarios:

1. Individuals with income above ₹5 million

Individuals with a total income exceeding ₹5 million (₹50 lakh) in a financial year must disclose their assets and corresponding liabilities under the Assets and Liabilities Schedule (Schedule AL) in their income tax return.

Non-Residents (NRs) and Not Ordinarily Residents (NORs): Required to report only their Indian assets.
Ordinary Residents (RORs): Required to report both Indian and foreign assets.

The following assets and liabilities are required to be reported in the Schedule AL:

Immovable Properties: Land, buildings, and other real estate holdings.
Movable Assets: Jewellery, vehicles, shares, securities, insurance policies, and cash in hand.
Liabilities: Any financial obligations tied to these assets.

2. Expatriates Qualifying as Ordinary Residents of India(RORs)

Under Indian tax laws, individuals classified as Ordinary Residents (RORs) are subject to taxation on their global income. Therefore, irrespective of their income level, they are required to disclose their foreign assets and income held during the calendar year ending on December 31st as part of their tax compliance obligations.

Many professionals and business owners working in India, including expatriates on Indian assignments, may transition into Ordinary Resident status over time due to long-term nature of their stay. This shift brings expanded tax obligations, making it crucial to assess reporting requirements carefully and ensure full compliance to avoid potential penalties.

As part of this compliance, foreign assets must be reported in the Schedule FA of the Income Tax Return (ITR), while foreign income is to be disclosed in Schedule FSI.

What needs to be reported?

Foreign Bank Accounts: Details of all bank accounts held abroad.
Stocks, Mutual Funds, or Other Financial Instruments: Investments in stocks, mutual funds, or similar financial instruments outside India.
Immovable Properties: Ownership details of any real estate properties located outside India.
Employee Stock Options (ESOPs): ESOPs granted by foreign companies.
Financial Interest in an Entity Located Abroad: Any ownership or beneficial interest in a company or partnership based outside India.
Signing Authority Over a Foreign Account: Any signing authority over any account abroad.
Foreign Income Sources including but not limited to:
- Salary earned from overseas assignment
- Dividend income from foreign investments
- Interest earned on foreign deposits
- Rental income from properties located overseas
- Capital gains realized from selling assets abroad

Quick Summary

Foreign national reporting requirement — *Foreign nationals residing in India for business, employment, or on a student visa are exempt from reporting foreign assets acquired while they were non-residents, provided no income is generated from such assets during the relevant tax year.

Claiming Foreign Tax Credit (FTC) and DTAA Benefits

Individuals classified as Ordinary Residents (RORs) in India, whose global income is taxable in India, may face dual taxation on their overseas earnings in both India and the country where the income was generated. To mitigate this, they can claim Foreign Tax Credit (FTC) for taxes paid abroad, ensuring they do not pay tax twice on the same income.

To prevent double taxation, India has signed Double Taxation Avoidance Agreements (DTAA) with multiple countries. These agreements help allocate taxing rights between India and the foreign country and provide mechanisms to offset foreign taxes paid against Indian tax liabilities. In practical terms, this means that:

If an individual has already paid tax on foreign income in another country, they can claim credit for those taxes while filing their Indian tax return.
DTAA provisions also offer preferential tax rates on certain types of income, such as interest, dividends, and capital gains, potentially reducing the overall tax burden.

To claim Foreign Tax Credit(FTC), taxpayers are required to submit an online statement of foreign income and taxes called Form 67 along with all documents supporting the claim of such overseas taxes paid and income earned.

While Form 67 is not required to be submitted along with the tax return, it must be furnished by March 31st of the following financial year to ensure eligibility for FTC. This flexibility allows individuals sufficient time to collect the necessary documentation without delaying their tax filing process.

For a detailed understanding of Form 67 and the process of claiming FTC download our guidebook

Conclusion

The Income Tax Department has recently intensified efforts to track undisclosed foreign assets and income through various mechanisms, including the Automatic Exchange of Information (AEOI) agreements and data analytics. These measures aim to identify individuals who have failed to report overseas holdings as per tax regulations.

Recently, the department has issued notices to at least 400 individuals who failed to disclose foreign assets held in countries such as the UAE, Singapore, and the UK. Further to this drive and awareness campaigns, the Income Tax Department uncovered undisclosed foreign assets and income totaling ₹22,000 crore, highlighting the scale of non-compliance and the stringent actions being taken.

Given the complexities of cross-border taxation, seeking professional advice can help individuals manage their specific tax obligations more effectively. At Expat Orbit, we provide comprehensive end-to-end solutions, assisting expatriates in managing their tax and compliance requirements with ease. If you have any queries reach out to us [email protected].