Foreign income and overseas asset disclosures are two of the most sensitive and litigated areas of income tax compliance in India. The Income-tax Department’s risk profiling, global data exchanges under CRS (Common Reporting Standard), and FATCA compliance make it imperative for taxpayers to get their residential status right, understand taxability correctly, and disclose in Schedule FA without gaps or over-disclosure.
This two-part professional guide distills the law, judicial interpretation, CBDT instructions, and tax planning insights for AY 2025–26.
Statutory Foundation: Residential Status – Section 6, Income-tax Act, 1961
Taxability of global income and the obligation to disclose foreign assets hinges entirely on residential status. Section 6 provides the tests:
(A) Individual
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Resident if in India for:
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≥182 days in the year, OR
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≥60 days in the year and ≥365 days in preceding 4 years.
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Exception: Indian citizens/PIOs visiting India enjoy 182-day relaxation (unless income > ₹15 lakhs, then 120-day test applies).
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Resident but Not Ordinarily Resident (RNOR) if:
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Non-resident in 9 out of 10 preceding years, OR
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Stay ≤729 days in preceding 7 years.
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Non-resident (NR) if neither condition is met.
(B) Company
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Resident if incorporated in India, or
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Place of effective management (POEM) in India.
Taxability Matrix – Section 5
| Residential Status | Income taxable in India |
|---|---|
| Resident & Ordinarily Resident (ROR) | Global income taxable (India + abroad). |
| Resident but Not Ordinarily Resident (RNOR) | Income from India + foreign income derived from business/profession controlled in India. |
| Non-resident (NR) | Only income received/deemed received in India, or accrues/arises in India. |
Key Insight: Only RORs are required to disclose global assets and financial interests in Schedule FA.
Schedule FA: When Disclosure Is Mandatory
As per ITR-2/ITR-3 Instructions:
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Applicable only to RORs.
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RNORs and NRs are not required to disclose foreign assets, even if they hold them.
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Reporting period: calendar year (Jan–Dec 2024 for AY 2025–26), not financial year.
Types of disclosures required:
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Foreign bank accounts
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Financial interests (equity, partnership, etc.)
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Immovable property
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Accounts where taxpayer is signing authority
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Trusts (settlor, trustee, or beneficiary)
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Any other capital/derivative interest
Law & Risk Interpretation
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Mismatch Risks: Global CRS/FATCA reports are matched with Schedule FA. Non-reporting can invite penalty under Black Money Act, 2015 (₹10 lakhs minimum per asset).
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Over-disclosure Risks: RNORs/NRs wrongly disclosing assets expose themselves to unnecessary scrutiny.
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Double Residency Cases: In cases of dual residence, DTAA tie-breaker rules apply — but disclosure is still expected in India if status = ROR.
Practical Tax Planning Insights
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Residential Break Planning: Business families with global assets often structure stay days to remain RNOR, thus exempting them from Schedule FA reporting.
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Trust Structures: Assets held via offshore trusts may still be reportable if the taxpayer is a trustee/beneficiary.
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Bank Accounts: Even dormant accounts abroad must be disclosed if you are ROR.
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Exit from ROR: If shifting abroad, plan stay days carefully to avoid one additional year of FA reporting.
Frequently Asked Questions (FAQs)
Q1. I am RNOR for AY 2025–26. Do I need to disclose my US bank account in Schedule FA?
No. Only RORs need to disclose foreign assets.
Q2. I sold my foreign property in March 2024. Do I need to disclose it in AY 2025–26?
If you were ROR and held it anytime during calendar year 2024 (Jan–Dec), yes. Sale proceeds are also taxable in India if capital gains arise.
Q3. I am NR with salary credited in Singapore bank. Should I report in Schedule FA?
No. NR disclosure is not required. Only India-sourced income is taxable.
Q4. I am a trustee of my father’s foreign trust. Do I need to disclose?
Yes, trusteeship interest must be disclosed in Schedule FA if you are ROR.
Q5. What if I mistakenly disclose foreign assets as NR?
It may raise unnecessary queries. Correct disclosure must be made based on residential status.
Key Takeaways from Part 1
✔️ Residential Status is the pivot — determine first under Section 6.
✔️ ROR = global taxability + Schedule FA disclosure.
✔️ RNOR/NR = limited taxability + no FA reporting.
✔️ Disclosure window is calendar year.
✔️ Tax planning possible through RNOR status management, trust structuring, and careful timing of residence shifts.
