Disclosure of Assets is the most crucial thing in tax filing. It can create your wealth as well as save you from the penalty of non-disclosing assets.
The same is the case of Schedule FA (Foreign Assets), which is mandatory for all resident (ordinary) taxpayers to disclose foreign assets while filing of taxes to the Indian tax authority.
It includes all foreign assets held by you either legally, as a beneficiary, or as a beneficial owner. As per the Income Tax Act of 1961, residents and ordinarily resident Indians should report their foreign income, assets, accounts, and shares in the ITR in a given format. This schedule helps curb tax evasion through offshore routes.
This schedule is more important for the Indian government to track foreign assets and curb illegal assets. In addition to the above, the resident can also avoid paying double tax on the same income by claiming relief under the Double Taxation Avoidance Agreement.
DTAA, or the double taxation avoidance agreement, is a type of agreement signed between two nations that ensures that the taxpayer does not have to pay taxes multiple times in different countries.
If you fail to report foreign assets in the Schedule FA while tax filing to the Indian tax authority then you are liable for a heavy penalty:
➡ You might have to pay a penalty of INR 10 lakhs for every year that you fail to disclose your foreign assets.
➡ Any non-reporting of foreign assets while filing the ITR is considered a willful evasion of tax and, you might have to face imprisonment of up to 7 years.
➡ Non-declaration also revokes your right to claim relief under the Double Taxation Avoidance Agreement for your foreign income.
By Mr Vivek Gupta (Practicing CA)