CBDT advises Taxpayers to carefully report their Foreign Income and Assets in ITR

The Central Board of Direct Taxes (CBDT) has advised all taxpayers to thoroughly assess their foreign income and assets and accurately report them in their Income Tax Returns (ITRs) while filing.

The Income Tax Department’s special edition of ‘Samvad’ promoted awareness about taxpayers’ appropriate disclosure of foreign assets and income. The session aims to improve taxpayer knowledge about the importance of appropriately reporting foreign income and assets in their Income Tax Returns (ITRs).

During the session, Commissioner (Investigation) of CBDT, Shashi Bhushan Shukla, explained that all Indian residents must declare their foreign assets, which can include real estate, bank accounts, shares, debentures, insurance policies, and any other financial assets in which they are the beneficial owner.

He stated that the Income Tax Department has included a detailed step-by-step guide in the ITR form, particularly in the “Foreign Assets and Income” schedule, where taxpayers can record their foreign income and assets.

He underlined that this provision only applies to resident taxpayers, as stated in Section 6 of the Income Tax Act.

Shukla defined resident taxpayers as those who had lived in India for at least 182 days in the preceding year or 365 days in the previous four years. Taxpayers who do not meet these requirements are classified as non-residents or not normally residents, and they are not required to report foreign income or assets.

He stated that only resident taxpayers must record their overseas income and assets on their ITR. The discussion then shifted to the prevalent misunderstanding about taxpayers who hold foreign assets but do not make any revenue from them.

Shukla noted that even if a resident taxpayer owns a foreign asset, such as property purchased years ago, that does not generate revenue, they must still declare it on their ITR, regardless of the lack of rental income or interest.

He gave the example of someone who purchased property abroad in 2010 but has not earned any revenue from it. Even in this instance, as long as the individual is a resident, they must report their property.

When asked about the situation in which a taxpayer holds foreign assets, such as an investment property or a bank account abroad, but the income generated by these assets is less than the taxable limit, Shukla confirmed that every resident taxpayer with foreign assets must report them, regardless of the amount of income generated. Not declaring foreign assets or income can result in penalties under the Black Money Act, including fines of up to Rs 10 lakh.

Regarding returning Non-Resident Indians (NRIs) who possessed foreign assets while living overseas, he stated that even if these individuals return to India and become residents, they must reveal their foreign assets and income for the years they qualify as residents.

According to Shukla, the same rules apply to any foreign citizen who becomes a resident in India. The requirement to disclose foreign assets applies to both residents and those transitioning to residency status.

On the disclosure of foreign stocks and investments, he stated that any dividends or capital gains made from these foreign stocks must be disclosed in the ITR according to the applicable schedule.

Shukla also discussed Double Taxation Avoidance Agreements (DTAAs), which India has signed with other countries. These agreements ensure that people do not pay taxes twice for the same income. If foreign taxes have already been deducted from income earned overseas, Indian taxpayers can avoid double taxation by claiming a tax credit under the DTAA, he explained.

Shukla emphasized the growing necessity of international tax transparency and information exchange. India recently signed a Common Reporting Standard (CRS) agreement with more than 120 nations to ensure that information about foreign assets and income is shared for tax purposes. This interchange of financial information aids in the fight against tax evasion and improves compliance, he noted.