AS the business environment becomes border-less, an increasing number of employees are travelling abroad for rendering services.
As part of the government’s measures to curb unaccounted money, additional reporting requirements have been introduced for individuals qualifying as Resident and Ordinarily Resident (ROR). The authorities have also modified the manner and the information requirements regarding disclosure of foreign income and foreign assets.
It is very important that you update yourself with the new regulations and changing requirements regarding the disclosure as well as offering of foreign sourced income in Indian tax return. Non-compliance with respect to disclosure and offering of income would attract penal implications under the recently introduced Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act).
Here are the key reporting requirements that could be applicable in case of foreign assignments for individuals qualifying as RORs:
Disclosure of foreign income
Schedule FSI has been introduced in the tax return, wherein you have to report income earned abroad separately. Further, you have to provide the break-up of foreign income under different heads of income (like income from salaries, house property, capital gains, other sources, etc). Also, taxpayers are required to mention either a Tax Identification Number (TIN) allotted by the foreign country tax authorities or Indian Passport Number in the Schedule FSI.
If the taxpayer has claimed a tax credit in his India tax return for the taxes paid in foreign country, the appropriate details (like taxes paid in host country, relevant article of the Tax Treaty etc), needs to be incorporated in the tax return.
Reporting of foreign assets
Further, there is a reporting requirement to disclose foreign assets in Schedule FA of the tax return. Foreign assets include foreign bank accounts, immovable property, foreign trust, financial interest in any entity and other assets held for investment purpose. The foreign bank account number and peak balance also needs to be mentioned. Further, the details of the shares/ stock options of a foreign company held by the taxpayer should be disclosed in the said schedule.
The level of information to be disclosed requires the taxpayer to maintain accurate details. The reporting of the information becomes extremely crucial as the Black Money Act provides for stringent measures against non-compliers like levy of 30% tax on undisclosed foreign income and value of foreign assets, penalty of 300% of the tax amount, penalty of R1 million for non-furnishing/ furnishing inaccurate particulars of foreign assets and initiation of prosecution proceedings.
Though moving to a foreign country for an assignment sounds attractive, one should always be mindful of the tax requirements in order to ensure effective compliance.
The writer, Amarpal S Chadha is partner & India mobility leader, EY. With inputs from Sreenivasulu Reddy