Schedule FA- Effect of Non-Disclosure of Foreign Assets while Filing ITR & Black Money Act

Sachin Jain — Tue, 28 May 2024 13:14:12 +0000

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.

• Section 43 of Black Money Act empowers authorities for penalty for non-disclosure of foreign assets detail in ITR.

• Its provisions are applicable on Resident Individual i.e. Individual who is ordinary tax Resident of India.

• As per this provision, it is mandatory to provide information of foreign assets outside India while filing the ITR.

• Failure to disclose foreign assets in ITR – A penalty of Rs 10 Lacs per year i.e. the year in which the foreign assets were not reported in ITR. If non-disclosure is in more than one year, then Assessing Officer can levy penalty for each defaulting year.

• Further to above, section 3 of Black Money Act empowers to levy of tax on undisclosed Income or Foreign Asset. It provides straight tax @30%(Maximum marginal rate) on undisclosed Income or Foreign Asset.

• Further, as per section 41 of Black Money Act, if there is any taxes levied under this Act because of non-disclosure of income or Foreign assets, then a penalty of three times of the tax amount shall be levied as penalty. Hence, if any amount is found undisclosed under this Act, then total of 120% (30% plus 3 times of the tax amount) of that amount is payable under 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.

NRI selling house property in India? Get all answers related to taxation here.

CA Rounak Jain — Sat, 20 Jan 2024 13:25:54 +0000

As a tax consultant we frequently deal with NRI clients on the topic of house property selling, it is with this knowledge, we have compiled & tried to answer here the top 10 frequently asked question by an NRI while selling their house property in India. We hope you will get your answer here.

Q1) Is there any restriction on sale of property by an NRI in india?

Ans – An NRI can freely sell his property in India, however if the property is an agricultural land,plantation land or farm house then in such scenario an NRI can’t sell property.Further if this agricultural land, plantation land or farm house is inherited to an NRI then he can sell but buyer should not be an NRI.

Q2) Why is the rate of TDS deduction so high for NRIs in comparison to residents?

Ans- It is a precautionary measure taken by the income tax authority, because if an NRI is not filing a return in India then it’s difficult to trace that person.Further, the rate is also kept higher in case an NRI doesn’t File ITR in India the objective of revenue collection on LTCG on the property sold will not be compromised.

Q3) Is there any way by which an NRI can reduce OR lower the rate of TDS deduction?

Ans- Yes an NRI can reduce or lower the rate of TDS deduction by obtaining a Nil/lower deduction certificate by filing Form 13 with the jurisdictional assessing officer.

Q4) Who is responsible for deducting TDS in case of NRI selling property in India?

Ans- The buyer of the property is responsible for the TDS deduction and does all the compliances related to that. However, it’s the NRI seller’s responsibility to disclose all the facts related to residential status to the buyer.

Q5) Is there any threshold limit up to which TDS is not deducted if the property is sold by an NRI?

Ans – As such there is no such limit, irrespective of the amount, NRI selling property in India will be liable for TDS deduction.

Q6) How as an NRI we can get confirmation on whether deducted TDS is deposited in our name or not?

Ans- To get the confirmation whether TDS is properly deducted and deposited, the seller can always ask for Form 16A from the buyer or we can also check in Form 26AS as well by logging on to the Income tax portal.

Q7) How difficult it is to take back or get a refund from the income tax department for the TDS deducted and deposited on the sale of property by an NRI?

Ans- To get a refund of TDS deducted on the sale of property by an NRI, the NRI must file his income tax return along with all the details of capital gains arising on the sale of property. If there is long term capital gains on such transaction then taxes arising on such transaction will be first adjusted with the deducted TDS and residue will be given as a refund.

Q8) NRI selling property in India and reinvesting the same in other properties in India, even then the TDS will be deducted at a higher rate?

Ans- Yes TDS will be levied at a rate (higher than normal) applicable to NRIs, however, to reduce the same one should file FORM 13 with the jurisdictional officer along with the necessary information on reinvestment, based on this if the officer feels satisfied then he can reduce the rate of TDS by issuing a lower deduction certificate.

Q9) What is the timeline to reinvest in a new property to avoid long-term capital gains on the sale of property by an NRI in India?

Ans- To claim this exemption, the NRI has to purchase one house property, within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset. However, if the property is not finalized before the due date of filing the return then in such case the amount can be deposited into the capital gains saving scheme account.

Q10) Can an NRI buy residential property outside India to save taxes on property sold in India?

Ans – No, to take advantage of section 54, one has to reinvest in properties situated in India only

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