For every person who qualifies as a “resident and ordinarily resident” of India, it is mandatory to file Income Tax Return (ITR) if the person has any assets (including financial interest in any entity) located outside India. or is the signing authority in any account abroad. This also applies to those who have no taxable income. It is reported under Schedule FA, which now includes “beneficiary owners or otherwise” and “beneficiaries” of any asset (including any financial interest in any entity) located outside India.
However, a “beneficiary” is not required to file ITR if income from such property is included in the income of a person who is required to file ITR in India. Reporting in Schedule FA is mandatory even if the same information is captured in another. Schedule (Like Schedule AL).
Schedule FA, unlike any other schedule, requires exhaustive information which may not always be readily available. For example, holding equity shares, bonds and debentures requires you to disclose the peak value of the investment during the accounting period. In addition to value, the income earned from such foreign asset during the relevant financial year as well as the nature of income and the head of income under which such income is offered to tax also needs to be reported in respect of each foreign asset. Is. The taxpayer has to scan all investments, bank details, property records, loan details, etc. to correctly report the information in Schedule FA.
Interestingly, Schedule FA follows the concept of an “accounting period” rather than a fiscal year. Accounting periods are classified into three types. Type 1 is one where the accounting period is January 1 to December 31 in the jurisdiction where the calendar year is considered for the purpose of closing accounts and tax filings. Many European countries, the US and Singapore follow it. Type 2 is where the accounting period is from April 1 to March 31 in the jurisdiction where the fiscal year is adopted. Type 3 is where the accounting period is of 12 months, which ends on any day after the 1st day of April, in respect of property in jurisdictions where the accounting period is used as a basis for the purpose of closing the accounts and tax filing. Any other period of 12 months is adopted. Australia follows this method.
The above difference between the accounting period and the financial year can lead to mismatch of tax on assets and income reported in ITR. For example, any foreign asset acquired and held in May 2021 will need to be reported in ITR for the financial year 2021-22. However, if a foreign asset is acquired, such as in January 2022, for which the relevant accounting year in the foreign jurisdiction is calendar year 2022, it may not require reporting in fiscal year 2021-22. Although assets acquired in January 2022 may not require reporting in the financial year 2021-22, income earned from such assets during the financial year 2021-22 will have to be reported.
The Income Tax Department has provided certain relief to an expatriate (not being an Indian citizen) who is in India on a business, employment or student visa, and has acquired an asset during any financial year in which he is a non-citizen. If no income is received from such asset during the current financial year, the resident need not report in Schedule FA.
Non-resident and not ordinarily resident are outside the purview of Schedule FA.
Overseas and Indian citizens who qualify as “residents and ordinarily resident” must be very careful in reporting foreign assets/income in ITR. Any omission or misstatement can invite additional tax at a flat rate of 30%, a fine of up to 3 times the tax and prosecution under the Black Money Act. Failure to furnish any information or furnish false information in respect of foreign income and foreign assets may also attract penalty 10 lakhs.
Sonu Iyer is Tax Partner and People Advisory Services Leader and Siddharth Deb is Tax Director, People Advisory Services at EY India.