Rajesh Parmar, an IT professional based in Germany, faced a complex tax challenge after relocating abroad in early 2025. After completing his initial Self-Assessment Tax filing for AY 2025-26 in September, he received an automated compliance notice from the Income Tax Department (ITD) in December 2025. The prompt instructed him to revise his ITR to declare unreported foreign assets and income.
Navigating cross-border tax compliance, specifically reporting foreign bank accounts, understanding Double Taxation Avoidance Agreements (DTAA), and distinguishing between past savings and current taxable income, proved difficult to resolve alone. To clear the notice accurately and avoid double taxation on his German income, Rajesh upgraded his service to ClearTax Notice Management.
Decoding the calculation
The tax notice centered around three main reporting requirements triggered by Rajesh’s overseas move to Germany:
Problem 1: Schedule FA omission (foreign bank account reporting)
Rajesh held an active German bank account containing €4,701.34 as of December 31, 2024. Under Indian tax regulations, Indian tax residents must declare all foreign financial accounts in Schedule FA (Foreign Assets), specifying peak and closing balances during the relevant calendar year. Because this was omitted in the initial filing, the ITD’s automated system flagged the account for non-compliance.
Problem 2: German income & foreign tax credit (FTC) under DTAA
Starting February 2025, Rajesh was locally employed by EPAM Systems GmbH in Germany, earning €7,232.14 in February and €7,500.00 in March 2025, with 42% tax withheld at source in Germany (€1,749.60 and €1,672.29 respectively). An initial computation draft inadvertently showed a 30% Indian tax liability on these earnings, raising concerns of double taxation. The computation needed to reflect Section 90 / DTAA relief and claim Foreign Tax Credit via Form 67 to ensure taxes paid in Germany offset any Indian tax liability on the same income.
Problem 3: Capital vs. income confusion (pre-existing savings)
The ITD notice also flagged the €4,701.34 balance in his German account. Rajesh clarified that this balance comprised past savings earned and taxed in Germany during 2020-2021, rather than new income for FY 2024-25. The expert confirmed that while this balance required disclosure under Schedule FA as a financial asset, it was existing capital and not subject to fresh income tax in India.
Finding the right approach
To resolve the compliance notice before statutory deadlines, ClearTax assigned a dedicated tax expert CA Samadhan A, who executed a systematic resolution plan:
Document collection & foreign pay slip audit: The CA requested and reviewed Rajesh’s German payslips, bank balance statements, and Income Tax e-filing portal credentials.
Schedule FA & DTAA structuring: The CA integrated the German bank account details into Schedule FA (capturing the €4,701.34 peak balance as of December 31, 2024) and structured the foreign salary income under the appropriate heads while applying DTAA relief.
Form 67 e-filing: To prevent double taxation, the expert prepared and submitted Form 67 to formally claim credit for the ~42% tax already deducted in Germany against his Indian tax return.
Revised return upload & verification: The CA drafted the revised computation, obtained Rajesh’s review, and successfully e-filed the Revised ITR under Section 139(5) on January 29, 2026.
The Income Tax Department accepted the revised schema, fully resolving the foreign asset compliance notice without levying penal double taxation on his overseas earnings.
Lessons for non-residents and expat professionals
Schedule FA is mandatory for global assets: Holding a foreign bank account or asset, even if funded by past taxed income, requires explicit reporting in Schedule FA under the relevant calendar year window (January to December).
Leverage DTAA to prevent double taxation: Income earned and taxed abroad does not automatically get taxed twice in India. Claiming Foreign Tax Credit (FTC) under Section 90 requires filing Form 67 before or alongside your return.
Distinguish between accumulated savings and current income: Existing foreign bank balances are capital assets requiring disclosure, not new taxable income. Proper documentation (past payslips and bank statements) protects against redundant taxation.
Upgrade to specialized notice management early: Standard self-filing software often misses foreign asset disclosures. Professional CA assistance ensures complex cross-border scenarios align with statutory tax laws.
(The author is the founder and CEO of ClearTax)
Disclaimer: The views expressed in this article are solely those of the author and do not reflect the official policy, editorial position or views of Financial Express. The article is intended for informational purposes only and should not be construed as tax, legal or financial advice.
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