Income Tax Foreign Assets: A Complete Guide for Indian Residents

In recent years, the Indian government has intensified its efforts to promote tax transparency and curb offshore tax evasion. As part of this initiative, Indian residents are required to disclose foreign assets and income in their income tax returns.

Whether you hold shares in a US company, own a foreign bank account, or have interests in trusts abroad, the obligation to report these assets is not optional. In this article, we explain how to report foreign assets under Indian tax laws, which ITR forms to use, and why accurate reporting matters.

Who Needs to Disclose Foreign Assets?

The disclosure requirement applies to individuals who qualify as Resident and Ordinarily Resident (ROR) under the Income Tax Act.

If you are an ROR and hold any of the following, you must report them:

  • Foreign bank accounts

  • Stocks, mutual funds, or bonds listed abroad

  • Immovable property located outside India

  • Financial interest in any foreign entity

  • Beneficiary or trustee of a foreign trust

  • Foreign insurance policies, pension funds, or annuities

Non-residents and resident but not ordinarily resident (RNOR) individuals are generally not required to report foreign assets unless specifically instructed.

Where to Report: Schedule FA in the ITR

The Schedule FA (Foreign Assets) section in your income tax return is where these disclosures are made. It is designed to capture comprehensive details of all foreign assets held at any time during the financial year.

The following information must be disclosed:

  • Nature and type of asset (e.g. equity shares, real estate, pension account)

  • Country name and code

  • Address and name of the foreign institution/entity

  • Date of acquisition and peak balance/value

  • Income generated (if any) and its nature

  • Nature of ownership (direct, beneficial, or as a trustee)

Even if the asset did not generate income, it must still be declared.

Which ITR Forms to Use for Declaring Foreign Assets

Not every ITR form includes Schedule FA. If you hold foreign assets, make sure you select a form that allows for such disclosure.

ITR-2

Use this if you are an individual or Hindu Undivided Family (HUF) with foreign assets but no income from business or profession.

ITR-3

This form is for individuals and HUFs having income from business or profession, along with foreign assets.

ITR-1 and ITR-4

Do not use these forms if you have foreign assets. They do not have Schedule FA and your return will be considered defective if you use them despite being required to report foreign assets.

Taxation of Foreign Income

Income earned from foreign assets (like rent, dividends, capital gains, or interest) must be reported under appropriate heads in the ITR:

  • Income from Other Sources (e.g. foreign dividends, interest)

  • Capital Gains (on sale of foreign shares or property)

  • Income from House Property (foreign rental income)

If you’ve already paid tax abroad on this income, you may be eligible for foreign tax credit under India’s Double Tax Avoidance Agreements (DTAA). To claim it, submit Form 67 before filing your ITR.

Penalties for Non-Disclosure of Foreign Assets

Non-reporting or misreporting of foreign assets can result in serious consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, including:

  • Penalty of ₹10 lakh per undisclosed foreign asset

  • Additional penalties or prosecution in extreme cases

  • Denial of credit or refund if return is treated as defective

The government has access to global financial data under FATCA and Common Reporting Standard (CRS), so it’s best to remain fully compliant.

Best Practices for Disclosure

  • Keep clear records of foreign investments, account statements, and tax deducted abroad

  • Disclose even if the account or asset was closed during the year

  • Consult a tax expert if you’re unsure about how to classify or report your assets

Conclusion

Disclosing foreign assets in your income tax return is not just a technical requirement it’s a legal and ethical responsibility. As global compliance becomes tighter, the Indian government is keen to track all overseas income and holdings by resident taxpayers.

By understanding the rules, using the correct ITR form, and accurately filling Schedule FA, you can avoid penalties and stay tax-compliant.

Need Help Filing Foreign Asset Disclosures?

At Tradeviser, we specialise in helping individuals and businesses with foreign asset disclosures and tax compliance. Our experts can guide you through the correct filing process and help you avoid penalties.

Reach out to us today and file your ITR with confidence.