Foreign Asset Disclosure in ITR – AY 2025–26

Professional Compliance, Risk Analysis, and Practical Guidance
By CA Surekha S Ahuja

Introduction: The Compliance Imperative

In today’s interconnected financial world, foreign assets are fully traceable. India participates in CRS and FATCA, enabling the Income Tax Department to receive verified data from hundreds of jurisdictions.

For AY 2025–26, the Department has identified high-risk cases where foreign assets are not reported in ITRs. SMS and email alerts have been sent to taxpayers, who now have until 31 December 2025 to revise returns or face penalties.

This note provides a comprehensive professional guide, covering law, intent, enforcement, penalties, risks, and procedural solutions, including revised ITR for AY 2025–26 and ITR-U for earlier years.

Legal Framework: Statutory Obligations

• Income-tax Act, 1961

  • Section 139(1): Requires all ROR taxpayers to disclose all foreign assets in Schedule FA.

  • Section 149: Reopening of assessments for foreign matters up to 16 years.

  • Rule 12 & ITR Forms: Specify reporting format and timeline.

• Black Money (Undisclosed Foreign Income & Assets) Act, 2015 (BMA)

  • Tax: 30% of asset value

  • Penalty: 90% of asset value

  • Prosecution: Up to 10 years

  • Applies even to historic assets or if foreign tax has been paid.

• CRS & FATCA Data Exchange

  • Annual sharing of bank accounts, investments, pensions, insurance, trusts, and entities.

  • Automatic cross-verification with ITR filings.

  • Non-disclosure flags high-risk cases.

Key Principle: Any foreign asset over which the taxpayer has ownership, control, or beneficial interest must be disclosed.

Legislative Intent: Purpose Behind Disclosure

1. Prevent Offshore Tax Evasion: Identify undisclosed accounts, layered investments, and untaxed foreign income.

2. Encourage Voluntary Compliance: Early correction reduces penalties and prosecution risk.

3. Align with Global Norms: CRS and FATCA obligations require domestic transparency.

Scope of Schedule FA: What to Disclose

• Bank Accounts: Active, dormant, joint, inherited, closed

• Investments: Foreign equities, bonds, mutual funds, ETFs, RSUs/ESOPs

• Insurance & Retirement Funds: 401(k), IRA, superannuation, foreign pensions

• Business/Entity Interests: Foreign companies, partnerships, trusts (all roles)

• Property Abroad: Residential, commercial, direct, or indirect

• Digital/Crypto Assets: Foreign wallets, exchanges

• Other Rights: Royalties, IP income, nominee accounts

Rule of Thumb: If the asset exists outside India and provides financial benefit, it must be disclosed.

Current Enforcement: AY 2025–26 Posture

• High-Risk Identification: AI-driven matching of foreign asset data vs. Schedule FA.

• SMS/Email Nudges: Alert taxpayers to revise ITRs by 31 December 2025.

• Past Year Performance: 24,678 taxpayers revised returns, disclosing ₹29,208 crore in assets and ₹1,089.88 crore in foreign-source income.

• Frequently Affected Groups: Senior citizens, retired NRIs, parents with joint accounts, RSU/ESOP holders.

Voluntary revision now avoids presumptions of concealment.

Consequences of Non-Disclosure

Income-tax Act

• Reopening under Section 149

• Penalty under Section 270A (200% of under-reported tax)

• Prosecution under Sections 276C/277

Black Money Act

• Tax: 30% of asset value

• Penalty: 90% of asset value

• Combined: 120% of asset value

• Prosecution: Up to 10 years

• Confiscation possible

Additional Risks: PAN flagged high-risk, restricted remittances, FEMA scrutiny, loss of treaty benefits, reputational and financial risk.

Procedural Solutions: Corrective Measures

1. Audit All Foreign Assets: Bank accounts, ESOPs, pensions, trusts, property.

2. Reconcile with Schedule FA: Confirm balances, ownership, and foreign-source income.

3. File Revised or Updated ITR:

   • AY 2025–26: File a revised ITR before 31 December 2025.

   • Earlier two years: Use ITR-U (Updated ITR) to report previously undisclosed foreign assets.

4. Maintain Documentation: Bank statements, acquisition proofs, foreign taxes paid, valuations.

5. Respond Promptly to Notices: Address SMS/email alerts professionally.

6. Seek Expert Guidance: Complex assets like trusts, RSUs, crypto, and cross-border investments require professional interpretation.

Foreign Asset Disclosure Checklist

• ✔ Bank accounts (active, dormant, joint, closed)

• ✔ Brokerage/custodial accounts, RSUs/ESOPs

• ✔ Foreign shares, ETFs, bonds

• ✔ Overseas property (residential/commercial)

• ✔ Foreign entities, trusts, partnerships

• ✔ Insurance and retirement funds

• ✔ Crypto or digital assets abroad

• ✔ Foreign royalties, IP income, nominee accounts

Guiding Principle: When in doubt, disclose it.

Conclusion: Transparency as Protection

Foreign asset disclosure is no longer a formality—it is financial self-protection.

Proactive, accurate, and well-documented disclosure ensures compliance, preserves legacy, and mitigates severe penalties.

“What you voluntarily disclose today will always cost less than what the system discovers tomorrow.”

For AY 2025–26, revision and professional documentation are critical, while earlier years can be regularized using ITR-U, ensuring full compliance and minimizing enforcement risk.