28 May Schedule FA- Effect of Non-Disclosure of Foreign Assets while Filing ITR & Black Money Act
All the residents and ordinary resident of India as per income tax act, HUF, NRIs (specifically those who Returned to India and now resident), Foreign Citizens (OCIs, PIOs, Others), who either returned back to India on permanent basis or come to India for a longer duration of time and become Tax Resident in India as per NRI Income Tax rule of based on the number of days they reside in India. Once these NRIs, Foreign Citizens become Tax Residents in India, they are liable for fair and true disclosure of Foreign Assets and Income in a section called Schedule FA while filing their income tax returns in India. In case if it is not done, they might attract the penalty provisions of income tax act hence, it is very important to understand the disclosure of Foreign Assets and Income and its Implications on Returning NRIs/Other Tax Residents.
Requirement of schedule FA
As per the Indian tax act 1961, every ordinary tax resident individual who owns any kind of Foreign Assets inclusive of but not limited to Bank Account, Foreign Shares, Foreign Mutual Funds, Immovable Property Outside India or any other Foreign Asset, then it is mandatory for such individual to properly disclose all the information pertaining to such assets in schedule FA while filing his ITR.
If an individual has invested in any foreign assets (being shares or mutual funds in a foreign company, etc.) directly or holds stock options (ESOPs) of foreign companies, even then it is mandatory for such individual to fill schedule FA of his ITR.
What is The Black Money Act?
Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015 enforced in 2015. However, in recent 2-3 years, the tax authorities (Foreign Assets Investigation Unit ‘FAIU’), who are entrusted to investigate and implement the proceedings of Black Money Act, has started sending notices for non-compliances of this Act.
Foreign Assets Investigation Unit (FAIU) – Proceedings To Investigate Foreign Assets Transactions
Income Tax Department has set up a separate department in all major cities of India to investigate the Foreign Assets Transactions. It is named as Foreign Assets Investigation Unit (FAIU). It is headed by an officer of Deputy Director of Income Tax (DDIT).
• The FAIU Department receives data from various sources (including foreign country income tax department under the agreement with that country for information exchange) eg. FATCA.
• When this department has reasons to believe that Foreign Assets information is not disclosed or disclosed incompletely/inaccurately, the FAIU Office can issues summon under section 131 of Income Tax Act to initiate the investigation.
• On receipt of the information from the foreign counterpart the FAIU office prepares a report and submit the same to higher authorities and on their approval, FAIU finalizes its findings.
• Many of NRIs/OCIs are also receiving notices u/s 131. Reason for the same is, FAIU gets foreign assets information however there is no ITR filed by these NRIs/OCIs, which gives reason to FAIU office to initiate an enquiry. Hence, for NRIs/OCIs, ITR filing is highly recommended to avoid this summon or other type of notices.
• If there are negative findings then proceedings of Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015 are initiated by this office to levy & collect penalty and taxes.
Note-Though provisions of foreign asset disclosures under Income tax act 1961 are not applicable to NRIs/OCIs living abroad. However, Income Tax Department (FAIU) gets information from the tax officials of foreign countries (under mutual information exchange clause of Tax Agreements between countries) and also some other sources. Hence, when there is no ITR filed by these NRIs/OCIs, then to confirm, FAIU issues notice to NRIs/OCIs. Hence, it is advisable for NRIs/OCIs that they file ITR in India to submit their non-resident status with the Tax Department.
However If an individual has a foreign bank account(s) and balance in total of all said foreign bank account(s) does not exceed Rs 5 Lakh, then penalty under section 43 of the Black Money Act cannot be imposed even if such bank account was not declared in schedule FA.