By CA Surekha
Foreign Asset (FA) disclosure in the Indian Income Tax Return is not a procedural afterthought — it is a statutory mandate with some of the most severe penalties in Indian tax law. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA), even innocent-looking non-reporting can trigger criminal prosecution.
With India’s participation in FATCA and the Common Reporting Standard (CRS), the tax department already has access to foreign asset and income data. FA disclosure is about matching your declaration with what they already know.
Why FA Disclosure Matters
| Risk Area | Legal Provision | Consequence |
|---|---|---|
| Non-disclosure of foreign asset | Sec. 43, BMA 2015 | Penalty ₹10,00,000 per year of default |
| Incorrect or incomplete disclosure | Sec. 50, BMA 2015 | Prosecution – 3 to 10 years imprisonment |
| Tax on undisclosed asset | Sec. 3, BMA 2015 | Flat 30% of value + penalty 3× tax |
💡 Key Point: Even if no income is earned from the asset, mere holding or signing authority triggers disclosure.
Who Must Disclose
| Category | Disclosure Required? | Notes |
|---|---|---|
| Resident & Ordinarily Resident (ROR) | ✅ Yes | Must disclose all foreign assets, whether or not they generate income |
| Resident but Not Ordinarily Resident (RNOR) | ❌ No | Unless foreign income arises from a business controlled from India |
| Non-Resident (NR) | ❌ No | Except if holding in fiduciary capacity for a resident |
| Beneficiary | ✅ Yes | Disclosure required even without legal ownership |
Legal Framework
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Income-tax Act – Sec. 139(1) Explanation 2: Mandatory ITR if foreign asset is held.
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ITR Forms – Schedule FA is the prescribed disclosure format.
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BMA 2015 – Sections 2(11), 3, 43, 50.
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CBDT Guidance – FAQs, press releases clarify coverage.
What Qualifies as a ‘Foreign Asset’
| Asset Type | Examples |
|---|---|
| Bank Accounts | Savings, current, term deposits abroad |
| Custodial Accounts | Brokerage, securities trading accounts |
| Equity/Debt Interests | Shares, bonds, debentures, ESOPs, RSUs |
| Financial Interests | Partnership interests, beneficial ownership in entities |
| Immovable Property | Land, buildings outside India |
| Insurance/Annuity Policies | Policies with cash/surrender value |
| Trust Interests | Settlor, trustee, or beneficiary in foreign trusts |
| Other Capital Assets | Precious metals, artworks, yachts |
Schedule FA – Column-by-Column Guide
| Schedule FA Category | Key Details to Report | Documents to Keep | Common Mistakes |
|---|---|---|---|
| A1 – Foreign Depository Accounts | Country, bank name, account no., peak & closing balance | Bank statements, SWIFT confirmations | Reporting only closing balance |
| A2 – Foreign Custodial Accounts | Custodian name, account no., peak & closing values | Broker/custodian statements | Ignoring dormant accounts |
| A3 – Foreign Equity/Debt Interest | Entity name, nature of interest, acquisition date, cost, peak value | Share certificates, broker records | Missing ESOPs/RSUs |
| A4 – Foreign Financial Interest | % ownership, income derived | Shareholding agreements | Not disclosing indirect ownership |
| A5 – Foreign Immovable Property | Country, address, acquisition date, cost, income | Title deeds, agreements | Using market value instead of cost |
| A6 – Foreign Insurance/Annuity Policies | Policy no., insurer, cash value | Policy docs, insurer statement | Ignoring no-income policies |
| A7 – Foreign Trusts | Role, trust name, country | Trust deed, correspondence | Assuming beneficiary role is exempt |
| A8 – Other Capital Assets | Description, location, acquisition cost | Purchase records | Overlooking collectibles |
Valuation & Conversion Rules
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Acquisition Cost Basis – Report at purchase cost, not market value.
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Peak Value – Highest value during the calendar year.
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Currency Conversion – Use SBI TT buying rate on transaction date.
Reporting Period
For AY 2025–26: Report assets held from 1 Jan 2024 to 31 Dec 2024.
This calendar year reporting is unique to Schedule FA.
Practical Compliance Safeguards
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Maintain a permanent FA file with annual updates.
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Obtain year-end statements from all foreign institutions.
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Match details with Form 67 if claiming foreign tax credit.
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Cross-verify with overseas tax filings.
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Disclose all accounts, even with zero balance.
Key Takeaways
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If you are an ROR and hold any foreign asset, disclose it.
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Ignorance is not a defence — law presumes you know your holdings.
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Errors can lead to ruinous penalties & prosecution.
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DTAA benefits do not remove disclosure obligations.
Foreign Asset (FA) Disclosure – ITR Reporting Matrix
| FA Schedule Category | What to Report | Key Data Points Required | ITR Forms Applicable | Common Mistakes / Risks |
|---|---|---|---|---|
| Foreign Depository Accounts | Savings, current, term deposits with foreign banks/financial institutions | Country, institution name & address, account number, opening date, peak balance during year, closing balance, interest income | ITR-2, ITR-3 | Reporting only closing balance & ignoring peak balance; mismatch with Form 67 for FTC |
| Foreign Custodial Accounts | Accounts with custodians holding investments abroad | Country, custodian name & address, account number, peak & closing balance, income earned | ITR-2, ITR-3 | Omitting accounts with zero closing balance but transactions during the year |
| Foreign Equity & Debt Interest | Shares, bonds, debentures, partnership interest in foreign entities | Country, entity details, nature of interest, acquisition date, peak value, closing value, income | ITR-2, ITR-3 | Failing to include ESOPs/RSUs from foreign employers |
| Foreign Cash Value Insurance / Annuity Contracts | Life insurance policies, annuities with foreign insurers | Country, insurer details, policy number, cash value, income | ITR-2, ITR-3 | Not reporting surrender value changes; ignoring policy with zero payout in year |
| Foreign Immovable Property | Residential, commercial property outside India | Country, address, ownership %, acquisition date, cost, current value, rental income | ITR-2, ITR-3 | Reporting only purchase cost, not current value; ignoring jointly owned property |
| Other Capital Assets Outside India | Intangibles (IPR), precious metals, artwork, etc. | Asset type, location, ownership %, acquisition cost, peak value, income | ITR-2, ITR-3 | Not reporting inherited assets |
| Foreign Bank Accounts of Signing Authority Only | Accounts where taxpayer is only signatory, not owner | Country, bank name & address, account number, authority start date, balance details | ITR-2, ITR-3 | Not declaring accounts of employer/subsidiary where you’re authorised signatory |
| Foreign Trust / Entity | Interest in trusts or entities outside India | Country, entity/trust name, address, PAN/ID (if any), nature of interest, income | ITR-2, ITR-3 | Not reporting revocable trusts or nominee holdings |
| Foreign Income Without Asset | Any income sourced from outside India | Country, payer details, nature of income, amount, FTC claimed | ITR-2, ITR-3 | Not matching with Schedule FSI & FTC; double reporting errors |
Compliance Tips
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Report even dormant or zero-balance accounts if held during the year.
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Match FA schedule with Form 67, Schedule FSI (Foreign Source Income), and bank/portfolio statements.
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Maintain supporting valuation & proof of ownership — CBDT scrutiny focuses heavily on this.
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Black Money Act risk: Non-reporting can lead to severe penalties (up to 300% of tax + prosecution).
