ITR filing: Holding overseas investments? Here’s what you need to disclose

However, the Income Tax Act mandates that eligible taxpayers disclose details of their foreign assets and income, even if the investments did not generate any income during the financial year.

For AY 2026-27, you’ll need to disclose details of your foreign assets and income accurately to stay compliant with tax laws. 

Missing these disclosures could invite notices, penalties, or scrutiny. Here’s what you need to know before filing your ITR for FY 2025-26 (AY 2026-27).

What counts as a foreign asset?

The reporting requirement is much wider than direct ownership of overseas property. Foreign assets generally include:

• Foreign movable and immovable assets
• Foreign income and investments
• Foreign bank or financial accounts, including dormant accounts
• Foreign equity shares, bonds, mutual funds, and ETFs
• Overseas real estate
• Interests in foreign partnerships, trusts, or companies
• Foreign retirement or pension accounts
• Foreign insurance or annuity contracts with cash value
• Stock options (ESOPs), RSUs, or other equity interests in foreign entities
• Signing authority over foreign bank accounts, even where beneficial ownership does not exist, in specified cases

Taxpayers should carefully evaluate all overseas financial interests rather than limiting disclosure to physical assets.

Deadlines to disclose foreign assets

Resident and Ordinarily Resident (ROR) taxpayers who are required to file an income tax return must disclose their foreign assets and income in the applicable ITR for the relevant financial year by the due date 31st July 2026. 

Such disclosures are made along with the income tax return and are therefore subject to the due date prescribed under section 139(1) of the Income-tax Act, 1961. While taxpayers having foreign assets can also file a revised return by the due date, 31st March 2027, to fix mistakes and avoid penalties. 

While a belated, revised, or updated return may permit correction of genuine omissions, taxpayers should avoid relying on such relief, particularly where overseas assets are involved, given the stringent reporting framework and the potential implications under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The cost of non-disclosure

Failure to disclose foreign assets may result in far more serious consequences than a routine tax adjustment. Given the increasing cross-border information exchange between tax authorities globally, the risk of detection has significantly increased. 

“Depending upon the facts, authorities may initiate proceedings under the Income-tax Act as well as the Black Money Act, which provides for taxation of undisclosed foreign assets, significant monetary penalties such as a flat 30% of asset value, Rs 10 Lakhs for each year of default, etc., and, in certain cases, prosecution ranging from 03 to 10 years. Even inadvertent omissions can invite scrutiny, making complete and accurate reporting critical,” said Akhil Chandna, Partner, Global People Solutions Leader, Grant Thornton Bharat. 

Required ITR forms and Schedules

Resident taxpayers having foreign assets or foreign-source income are generally required to report such details in:

Schedule FA (Foreign Assets)- details of foreign assets held during the relevant accounting period.

Schedule FSI (Foreign Source Income)- income earned outside India and foreign tax credit claimed.

Schedule TR (Taxes Paid Outside India)- foreign taxes paid.

Form 67- required for claiming foreign tax credit under Rule 128 of the Income-tax Rules, 1962

The applicable ITR form (such as ITR-2 or ITR-3) depends on the taxpayer’s nature of income.

What are the most common mistakes taxpayers make while reporting foreign assets?

Akhil Chandna says some recurring errors include:

• Assuming foreign assets need not be reported if they generate no income
• Omit reporting of assets acquired in earlier years
• Disclosing the value of assets as on 31 March (being the end of the financial year), whereas the Schedule specifically requires reporting values as on 31 December 
• Not reporting dormant or low-value foreign bank accounts
• Omitting RSUs, ESOPs, or overseas brokerage accounts
• Reporting only year-end balances instead of the prescribed information
• Using incorrect exchange rates
• Claiming foreign tax credit without filing Form 67
• Ignoring foreign pension or retirement accounts where disclosure is required
• Believing disclosure is unnecessary because tax has already been paid overseas

Most reporting failures arise from lack of awareness rather than deliberate concealment.

How does the Black Money Act apply to non-disclosure of overseas investments?

The Black Money Act applies to undisclosed foreign income and assets held by a person who is a resident in India for the relevant previous year. Where an overseas asset is not disclosed, and its source cannot be satisfactorily explained, authorities may invoke the provisions of the Act. 

“The law provides for taxation at a flat rate of 30% of the asset’s value, along with penalties that may extend to three times the tax payable and Rs 10 lakh as a fixed fine per omission, besides prosecution in specified cases. The consequences are therefore substantially more severe than those under the Income-tax Act, 1961,” commented Akhil Chandna. 

Which exchange rate should taxpayers use while reporting foreign assets and income?

There is no single exchange rate applicable to all disclosures.

“Income is generally converted in accordance with Rule 115 of the Income-tax Rules, 1962 (the Rules). Foreign tax credit is computed using the telegraphic transfer buying rate (TTBR) on the prescribed date under Rule 128 of the Rules,” says Akhil Chandna. 

Certain disclosures in Schedule FA require reporting of the asset’s cost or peak balance as per the instructions accompanying the ITR utilities, which typically require values to be disclosed as on 31 December.

Taxpayers should therefore follow the specific instructions applicable to each schedule rather than adopting a uniform exchange rate.

What records should taxpayers maintain to defend their foreign asset disclosures in case of scrutiny?

Given the increasing use of global information exchange mechanisms, taxpayers should retain adequate documentation, including:

• Foreign bank statements
• Brokerage and investment statements
• Purchase and sale agreements
• Dividend and interest statements
• ESOP/RSU grant and vesting documents
• Property ownership records
• Foreign tax payment certificates
• Foreign Tax Returns
• Employer compensation records
• Exchange rate workings
• Form 67 and supporting documentation

Maintaining a proper audit trail significantly reduces difficulties during assessment or scrutiny.

How can taxpayers claim the Foreign Tax Credit (FTC)?

A resident taxpayer can claim credit for taxes paid outside India, subject to the provisions of the applicable Double Taxation Avoidance Agreement (DTAA) or section 91 of the Income-tax Act, 1961. According to Akhil Chandna, the taxpayer should:

• Offer the foreign income to tax in India
• Report the income in Schedule FSI
• Report foreign taxes in Schedule TR and Schedule FTC
• File Form 67 on or before the due date prescribed under section 139(1), along with the necessary supporting documents

The credit is generally restricted to the lower of the Indian tax payable on such income or the foreign tax actually paid, thereby preventing double taxation without resulting in a double tax benefit.

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.    

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