Avoid penalty for failing to disclose foreign investments when filing an ITR

Indian investors have been investing in US stocks to keep their portfolios diversified across geographies. Such investors need to be aware of the tax laws while investing abroad. As an Indian taxpayer, it is important to not only pay tax on the gains, and dividends earned but also make the right disclosures about foreign investments. Taxpayers may end up paying a penalty for failing to disclose foreign holdings while filing an income tax return.

Schedule FA in the ITR Form is an important furnishing where one needs to provide details of foreign assets or income from any source outside India. This schedule need not be filled up if you are Not Ordinarily Resident or a Non-Resident.

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Dr. Suresh Surana, Founder – RSM India shares the importance and consequences of non-disclosure of foreign investments.

As per the Income tax laws, every Indian investor is obliged to disclose the details of transactions pertaining to the Capital Gain and Dividend in “Schedule CG” and “Schedule OS” respectively in their Income tax return in India. Moreover, Resident and Ordinarily Resident investors must also furnish the details of such foreign stocks in “Schedule FA” of their Income Tax Return.

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The Income Tax Authorities, on Non-disclosure of foreign investments in the respective schedules, might issue a notice to the assessee with a contention of undisclosed asset and income and also treat such income tax return as a defective return u/s 139(9) of the IT Act.

Apart from this, “The Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (‘BMA’)” imposes a more stringent penalty of Rs. 10 lakhs for non-disclosure of a foreign asset in Schedule FA.

Thus, it is very important for Indian investors making investments in US-listed securities to know the disclosure requirements and the consequences of not disclosing the same in their Income Tax Returns. Investors must take due care while filing their returns and diligently disclose all the necessary details of foreign investments in Schedule FA.