Compulsory to file for taxpayers holding foreign assets or earning income from such assets income tax return (ITR).
Foreign assets include foreign real estate, bank accounts (both depository and custodian), debt or equity interest, other capital assets, cash value insurance contracts, annuity contracts and accounts or financial interests in any entity where the taxpayer is a beneficiary, signed The authorizing authority or settler.
Foreign assets are reported in Schedule Foreign Assets or FA of ITR-2 or ITR-3, as applicable taxpayer,
Till now, these assets were to be reported for the respective ‘accounting period’ as defined by the foreign country in which they were acquired.
For assessment year 2022-23, the accounting period has been replaced with a calendar year (ending 31 December 2021) for jurisdictions that follow a calendar year, such as the US. This means that all foreign assets held between 1 January 2021 and 31 December 2021 must be declared in this year’s ITR. So, suppose, you bought shares of X company in February 2022, which is located outside India. You are not required to report them in the ITR of the current assessment year though it was purchased during the previous financial year. In the assessment year 2023-24, the shares of X will have to be disclosed.
Note, even if the disclosure is as per calendar year, tax in India is to be calculated as per financial year. For example, if you have bought and sold a property in January 2022 and earned capital gains on it, you will have to pay tax on it in FY 2021-22. However, you have to report it in AY2023-24 and not AY2022-23.
The taxation of income from retirement benefit accounts (RBAs) has long been a pain point for taxpayers. In India, income earned from deposits is taxed even if it is not withdrawn, whereas countries where RBA is conducted generally have tax withdrawals. This led to double taxation.
“It also causes hardship to non-residents who return to India permanently as they face difficulty in obtaining Foreign Tax Credit (FTC) in respect of tax paid outside India on such income. To remove this difficulty, section 89A has been introduced,” said Yeshu Sehgal, Head – Tax Markets, AKM Global, a tax and consulting firm.
Presently, three countries, USA, UK and Canada have been notified for this purpose. “There are two separate boxes in the ITR form for disclosing income from RBA for notified country and non-notified country,” Sehgal said.
Taxpayers who want the income earned from RBAs during the financial year 2021-22 to be taxed in the year of withdrawal, should file Form 10EE before filing their ITR. Once selected, this option cannot be reversed.