Declare Foreign Assets or Face ₹10 Lakh Penalty: Income Tax Department’s Compliance Campaign

The Income Tax (I-T) Department has launched an awareness campaign emphasizing the mandatory reporting of foreign assets and income in the Income Tax Return (ITR) for Assessment Year (AY) 2024-25. This campaign aims to ensure compliance with the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, warning taxpayers of severe penalties for non-compliance.

What Constitutes a Foreign Asset?

For Indian residents, foreign assets include but are not limited to:

• Bank accounts held abroad.
• Immovable property such as land or buildings outside India.
• Equity and debt interests in foreign companies.
• Custodial accounts and other financial accounts.
• Financial interests in entities or businesses abroad.
• Trusts (where an individual is a trustee, beneficiary, or settlor).
• Cash value insurance contracts or annuity contracts.
• Capital assets located outside India.

Who Needs to Report Foreign Assets?

As per the I-T department’s advisory, all Indian residents who hold foreign assets or have earned income from foreign sources must mandatorily report these in their ITR. This requirement applies even if:

1. The total income is below the taxable limit.
2. The foreign asset was acquired through disclosed and legitimate sources.

Penalties for Non-Compliance

Failing to report foreign assets or foreign income can lead to:

• A monetary penalty of ₹10 lakh under the Black Money Act.
• Additional scrutiny and possible legal action by tax authorities.

The penalty is applicable regardless of whether the asset is taxable or was lawfully acquired.

The Compliance-Cum-Awareness Campaign

To promote compliance, the Central Board of Direct Taxes (CBDT) has launched an SMS and email-based awareness campaign. Here’s how it works:

• Informational messages are being sent to taxpayers flagged as potentially holding foreign assets or earning foreign income.
• These messages are based on information shared under bilateral and multilateral agreements with other jurisdictions.
• The campaign is designed to remind and guide taxpayers who may have missed completing the Foreign Asset (FA) or Foreign Source Income (FSI) schedule in their ITR.

Deadline for Filing Revised or Belated ITR

Taxpayers have until December 31, 2024, to:

• File a revised return correcting any omissions in their initial filing.
• Submit a belated return if they missed the original deadline.

Why is This Campaign Important?

1. Promoting Transparency:
   • The initiative underscores the government’s commitment to eliminating unreported foreign income and assets.
   • It aligns with international standards for financial transparency.
2. Leveraging Global Information Sharing:
   • India’s participation in bilateral and multilateral agreements enables access to data on Indian residents holding foreign assets.
3. Encouraging Voluntary Compliance:
   • By reminding taxpayers of their obligations, the campaign reduces the risk of inadvertent non-compliance.

Steps to Ensure Compliance

To avoid penalties, taxpayers should:

1. Review Foreign Assets and Income:
   • Identify all foreign-held assets and income sources that must be disclosed.
2. Complete Relevant Schedules in ITR:
   • Accurately fill out the Foreign Asset (FA) and Foreign Source Income (FSI) schedules.
3. Consult a Tax Expert:
   • Seek professional advice to ensure all foreign holdings and income are reported correctly.
4. File or Revise Returns Promptly:
   • Act before the December 31, 2024 deadline to avoid penalties.

FAQs

Q1: What qualifies as a foreign asset under Indian tax law?
Foreign assets include bank accounts, immovable property, financial interests, equity or debt investments, and trusts held abroad.

Q2: Do I need to report foreign assets if my income is below the taxable limit?
Yes, reporting is mandatory even if your income is below the taxable limit.

Q3: What is the penalty for failing to disclose foreign assets?
Non-disclosure can attract a penalty of ₹10 lakh under the Black Money Act.

Q4: Can I revise my ITR if I missed reporting foreign assets?
Yes, you can file a revised ITR before December 31, 2024.

Q5: How does the I-T department identify unreported foreign assets?
The department uses information from bilateral and multilateral agreements with other countries to track potential non-disclosures.

Conclusion

The I-T department’s compliance campaign serves as a timely reminder for taxpayers to uphold transparency and accuracy in reporting foreign assets and income. Avoid hefty penalties and legal complications by reviewing and revising your ITR if necessary. With the December 31, 2024, deadline fast approaching, ensure full compliance with the tax laws to safeguard your financial integrity.