How to disclose foreign shares in your IT return

Very often, employees are given foreign parent company stock options (ESOPs) that are vested over a period of time, can then be exercised, and are then held as stock. Are ESOPs required to be disclosed as foreign assets if they are not vested, or vested but not exercised? Till the time they are exercised, no amount is paid towards ESOPs. Even the calculation of perquisite value is done only after exercise. ESOPs are considered contingent assets until vested. They are not equity until exercised. Therefore, ESOPs vested under Part B of Scheduled FAs are advised to be shown as financial interest in any entity held at zero value.

Where should the shares be disclosed in Schedule FA if you are a resident in India holding US stocks through a broker or portfolio manager – as foreign equity interest in Part A3, or foreign custody accounts in Part A2? In form of? In most cases, physical share certificates are not issued in your name, and are kept in street name by a stockbroker or portfolio manager, i.e. they are held in the name of the broker or portfolio manager who issues an account statement. does. Stocks that they hold on your behalf. Such stock is not registered in your name with the company, and therefore must be disclosed as a custodial account maintained in Part A2, and not as equity interest.

In such cases, typically an investor will have multiple stocks in a single broking account or portfolio. So what one needs to disclose is the broking or portfolio account, the maximum balance of the entire portfolio, etc. Sometimes, providing the maximum balance (the maximum account balance during a particular period) can be a challenge, unless the broker or portfolio manager provides it. Alternatively, one can take the maximum balance as the highest closing monthly balance as per the monthly statement provided. If broking or portfolio accounts are in joint name, are both the joint holders required to disclose the same balance even though one name can be linked only for convenience and all assets belong to the first holder only? Perhaps this may suffice if the joint holder, who does not actually own the foreign asset for tax purposes, discloses such a custodial account in Part E of Schedule FA, the accounts of which you have signing authorization. To err on the safe side, it may be advisable to disclose the custodial account in Schedule FA of both the joint holders. The reporting financial institution will also normally disclose both joint holders in their FATCA/CRS filings, and such disclosure by both joint holders will facilitate verification of data received by tax authorities.

Sometimes, you may have invested in a fund, which can be structured as a trust or an LLC (limited liability company). What is the appropriate disclosure for investment in such fund – in the form of equity interest – Part A 3 (in case of LLC), as beneficiary of trust – Part F (in case of trust structure), or financial in any institution Interest – Part B? In an investment fund, you are not really aware of what is required to be disclosed to other investors if you are a beneficiary of a trust. In an LLC, you are actually investing in a fund rather than holding an equity interest. Therefore, the appropriate disclosure would be in the form of a financial interest in any entity held – Part B.

These and many other issues come up when you are filing Schedule FA. In the absence of any detailed practical guidance provided by the tax authorities in this regard, one has to try and understand the reasoning, and to ensure that the foreign investment is disclosed, Schedule FA has to be read in its own understanding. to be filled accordingly. You cannot be penalized for failing to disclose foreign assets or making false disclosures as long as you have ultimately disclosed assets in some part of Schedule FA that is a probable mode of disclosure.

Gautam Nayak is a Partner at CNK & Associates LLP.

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