Understanding Schedule FA for Foreign Assets and Income
Within Income Tax Return (ITR) Forms 2 and 3, Schedule FA stands out as a critical yet complex section designed for reporting foreign assets, income, and beneficial ownership. Introduced to combat tax evasion and money laundering, Schedule FA has been a mandatory inclusion since the fiscal year 2011-12 (assessment year 2012-13). It necessitates that ordinarily resident individuals in India disclose their foreign assets and income, irrespective of whether this income is taxable in India. Non-Resident individuals (NRIs) and Not-Ordinarily Resident individuals (NOR) are exempt from these disclosures.
Mandatory Disclosures in Schedule FA
When filing ITR forms, individuals with foreign assets and income must use either ITR 2 or ITR 3, which include Schedule FA. Key disclosures in Schedule FA encompass:
Income from any foreign source, including dividends, interest, or capital gains.
Foreign-held assets such as shares, debentures, life insurance policies, annuity contracts, and immovable properties.
Financial or beneficial interests in overseas entities, such as partnerships or trusts.
Signing authority over any foreign bank or trading accounts.
These disclosures are mandatory regardless of the nature of ownership—legal or beneficial.
Disclosure Period and Reporting Obligations
For the FY 2023-24 (AY 2024-25), the relevant disclosure period in Schedule FA spans the calendar year 2023. Although the schedule follows the calendar year for reporting purposes, taxable income is calculated based on the financial year. This distinction ensures accurate tax computations and compliance.
Penalties for Non-Disclosure
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, mandates strict penalties for failing to disclose foreign assets and income. Non-compliance can result in a Rs 10 lakh penalty and potential imprisonment ranging from six months to seven years, along with fines. A pertinent example is the Mumbai Tribunal’s decision in Shobha Harish Thawani v. Joint CIT, which upheld a Rs 10 lakh penalty per assessment year for non-disclosure in Schedule FA for AYs 2016-17 to 2018-19.
Step-by-Step Reporting of Foreign Income
Mr. A, a resident of India, opened a trading account with an Indian broker in March 2023 to invest in shares listed on NASDAQ. This involved setting up a USA trading account through a USA broker and a savings account with Federal Bank for deposits. By the end of 2023, he had made significant deposits and investments in shares of Google, Meta, Amazon, and Nvidia, earning dividends from these investments.
To report these transactions in Schedule FA, Mr. A must use Table A2 for foreign custodial accounts and Table A3 for foreign equity and debt interests. Here’s how these details are captured:
Table A2: Foreign Custodial Accounts
| Particulars | Details |
|---|---|
| Description of Table | Foreign Custodial Account |
| Country Name | United States of America |
| Country Code | 2 |
| Name of Financial Institution | Alpaca Securities LLC |
| Address of Financial Institution | USA |
| Zip Code | Code |
| Account Number | * |
| Status | Beneficial Owner |
| Account opening date | 01-Mar-2023 |
| Peak balance during the period | Rs. 49.30 Lakh |
| Closing balance | Rs. 49.30 Lakh |
| Gross amount paid/credited to the account during the period | Rs. 24.30 Lakh |
Table A3: Foreign Equity and Debt Interests
| Particulars | Meta | Amazon | Nvidia | |
|---|---|---|---|---|
| Description of Table | Foreign Equity and Debt Instrument | |||
| Country Name | United States of America | |||
| Country Code | 2 | |||
| Name of Entity | Meta | Amazon | Nvidia | |
| Address of Entity | USA | USA | USA | – |
| Zip Code | Code | Code | Code | – |
| Nature of Entity | Listed Company | Listed Company | Listed Company | – |
| Date of acquiring of interest | 10-03-2023 | 15-06-2023 | 15-09-2023 | – |
| Initial value of investment | Rs. 5 lakhs | Rs. 10 lakhs | Rs. 20 lakhs | – |
| Peak balance of investment during the period | Note 2 | Note 2 | Note 2 | – |
| Closing value | Rs. 5 lakhs | Rs. 10 lakhs | – | – |
| Total gross amount paid/credited with respect to the holding during the period | Rs. 10,000 | 20,000 | – | – |
| Total gross proceeds from sale or redemption of investment during the period | – | – | 24,00,000 | – |
Taxation and Currency Conversion
Schedule FA requires disclosure but does not alter the tax treatment of foreign income. For example, dividends earned in the last quarter of FY 2023-24 are taxable in AY 2024-25, even if not immediately disclosed in Schedule FA. Currency conversion for reporting purposes must follow the State Bank of India’s Telegraphic Transfer Buying Rate (TTBR) as of specific dates relevant to each transaction.
By adhering to these guidelines, taxpayers ensure full compliance and avoid severe penalties, maintaining transparency in their financial affairs involving foreign assets and income.
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