What is the requirement of disclosing of Foreign Assets in India? Is It Applicable To NRI?
As per the requirements of Indian ITR and provisions of Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015, every Ordinary resident is under obligation to report his/her foreign assets in Schedule FA of ITR and offer for taxation all foreign income in the ITR. NRIs/Other Non-Residents are not under obligation to report their Foreign Assets in Indian ITR.
What are Foreign Assets under Black Money Act 2015, which ROR needs to report in ITR?
As per the provisions, following are the information which need to be submitted in the ITR form FA Schedule
- Foreign Depository Accounts i.e. Foreign Bank Accounts details
- Foreign Custodial Accounts i.e. stocks/bonds
- Foreign Equity and Debt Interest in some Entity
- Foreign Cash Value Insurance/Annuity Contract
- Financial Interest In Foreign Entity
- Immovable Property outside India
- Other Foreign Assets
- Accounts Where A Person is Signing Authority
- Details of Foreign Trust where tax payer is trustee/beneficiary/settlor
What is Black Money Act? What are Black Money Act Implications For Returning NRIs?
Black Money Act (BMA) full name is Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015, which came into force in 2015. This act requires all Ordinary Residnets to report foreign assets and income in ITR. Non reporting of foreign asset leads to penalty of Rs 10 Lakh for each defaulting year. Non declaration of income in ITR attracts taxation @30% without any tax slab benefit. Under section 41 of BMA, penalty upto 3 times of undisclosed income taxes can be levied. All Returning NRIs/OCIs and Foreign citizens (including Expatriates) living/working in India need to be very cautious about reporting requirement of Foreign Assets and Income in Indian ITR, if they are Ordinary Resident in India.
What is FAIU under Black Money Act Proceeding?
FAIU is a department in Income Tax, who handles Black Money Act proceedings. Its full name is Foreign Assets Investigation Unit. FAIU is entrusted to investigate and implement the proceedings of Black Money Act. This authority, on receiving any information of foreign assets/income in relation to Resident tax payers, initiate a summon u/s 131(1A), where they investigate the taxpayer to find information to find out if there is any undisclosed income or assets which need to be assessed under Black Money Act proceedings.
How the information is being received by FAIU in relation to Foreign assets/income?
Govt of India has entered into Multilateral Agreements with various countries where the information flow under the Automatic Exchange Of Information (AEOI). Under AEOI, tax authorities exchange information under International frameworks for increasing transparency (which are designed to combat tax evasion). These frameworks are FATCA (Foreign Account Tax Compliance Act – For USA), and CRS (Common Reporting Standard – For worldwide). Information also come This include information of controlling persons (beneficial owners) of the asset. On the basis of access of this information, FAIU department issues summons u/s 131(1A) where there is no disclosure of Foreign assets/income in Indian ITR.
Whether Black Money Act Notice can also be sent to Non-Residents in relation to their Foreign Assets/Income?
As per the provisions of Black Money Act 2015, foreign assets/income reporting is not applicable on Non-residents. However, on the basis of information received from their foreign counterpart and reconciliation of same with ITR, in many cases tax authorities (FAIU deptt generally) summons (u/s 131(1A)) to non-residents to submit information and clarifications wrt their Foreign assets/income. This happens due to non-filing of ITR by Non-residents as the India tax department does not know that respective person is a Non-resident in India and foreign assets/income are out of foreign earned money while living/working abroad. On receipt of the summon, Non-Resident (i.e. NRI, OCI, Others living & working abroad) need to submit a comprehensive detail response of the summon along with all necessary information so that tax authorities can be satisfied that there is no non-compliance or tax evasion by the respective Non-resident in relation to their foreign assets/income. To avoid this kind of enquiries, Non-resident may choose to file an ITR in India on regular basis and report their Non-resident status therein.
What are the consequences (Taxes, Penalties under BMA) for non-disclosing of foreign assets in ITR?
Consequences are as under
- Tax @30% straight (without slab benefit) on undisclosed income (Sec 3)
- Penalty upto 3 times of tax on undisclosed income under BMA (Sec 41)
- Penalty for non-disclosure of foreign assets @ Rs 10 Lakh for each defaulting year (Sec 43)
- Prosecution – Punishment for willful attempt to evade tax (Sec 51)
- Penal Provisions of FEMA, PMLA etc may also be imposed in specific violations.
Is there any threshold or relaxation for non-disclosure of foreign assets in ITR?
Under BMA provisions, there is a relaxation of Sec 43 penalty (Rs 10 Lakh) for non-disclosure of Foreign Assets in ITR. Under this relaxation, wef Oct 1, 2024 (vide Budget 2024 amendment), if disclosure of foreign asset is not made in the ITR and the total value of foreign assets is less than Rs 20 Lakh then penalty of section 43 shall not be imposed. Hence, there is an exemption for foreign assets under Rs 20 Lakh value from disclosure in ITR. However, this relaxation does not apply for immovable property. Hence, this is very beneficial provision for may Returning NRIs. Many Returning NRIs/OCIs, in many cases, maintain some foreign bank accounts (with very small amount balance). However, they miss to report this in their Indian ITR. So, if the balance of these accounts is very minimal then they may enjoy the exemption benefit and avoid penalty.
What are the regulations for Returning NRIs under the Black Money Act?
Returning NRIs, as per their number of days stay in India in past few years, can be categorized as Not Ordinary Resident (NOR) for 1, 2 or 3 years after returning back. As per the BMA/ITR Form requirement, an NOR is not under obligation to submit his foreign income or foreign assets in FA schedule of ITR form. Hence, to the extent NRI is categorized as NOR, he/she is exempt from FA schedule requirement as well exempt under BMA proceedings. However, he/she must consult tax expert and file his/her ITR regularly (including the years he/she is Non-resident or NOR). Also, a consultation (at the time of returning back to India) can be done with tax experts for a better understanding on prevailing laws and its implications on his/her assets/income.
Whether Expatriates, foreign citizens working/living In India are also required to disclose their foreign income and assets in India?
Yes. Expatriates/Foreign citizens, working/living in India, are required to file ITR in India. They are also under obligation to declare their foreign assets and foreign income in Indian ITR if their residential status is Ordinary Resident in India. BMA provisions will apply to all Ordinary Residents irrespective of their citizenship.
What relief is given by Kolkata Income Tax Appellate Tribunal to assessee under Black Money Act? Case Law – Vikash Marda vs. JCIT, Range-2(C), Kolkata (BMA 4-12/Kol/2024).
In 2024, Kolkata ITAT), in its ruling in case of Vikash Marda, revoked the penalty and assessments order passed by the Assessing Officer (AO) under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act). These assessments were made by the AO for Assessment Years (AY) 2014-15, 2015-16, and 2016-17.
Facts of the case: Assessee, Vikash Marda, who was working in USA during 1999 to 2007 (and was tax residend of USA), had investments in USA in Non-retirement Fund (NRF) out of his USA earning savings. He left his job and returned back to India in FY 2007-08. On returning back also, he was maintaining his NRF investment and earning some yearly dividend income thereon which was re-invested in that fund only as per the fund plan. He was filing ITR in India and reported his foreign accounts detail in FA Schedule of ITR wef assessment year 2017-18 onwards. On receipt of FA schedule information, AO issued notices u/s 10(1) of BMA Act for AY 2014-15, 15-16 and 16-17. AO treated notional increase in NRF and reinvested dividend as undisclosed income and foreign asset and levied taxes and penalties under the BMA Act. Matter went to Kolkata ITAT, where ITAT has decided the case in favor of assessee.
Judgement Held: Matter went to Kolkata ITAT, where ITAT has decided the case in favour of assessee, and held following key points
- Wrt retrospective application of Black Money Act (i.e. from the date when BMA was not into force), ITAT held that it cannot be made applicable retrospectively.
- ITAT further held that foreign assets and income can be assessed in the year when AO received the information. In assessee case, since the NRF information has been received by AO in FY 2018-19, hence, proceedings cannot be initiated for the year prior to AY 2019-20.
- Kolkata ITAT also held that assessee case cannot be categorised as undisclosed as the original source of NRF investment was out of USA earned income which was duly tax paid in USA and it was not taxable in India being assessee Non-resident in those days.
- Kolkata Inc Tax Tribunal also held that since assessee started disclosing his foreign assets and income from AY 2017-18 voluntarily. Therefore, the earlier year non-disclosure was a procedural lapse on account of assessee. Assessee intention was never there to hide it or evade taxes. Hence, it cannot be qualified as Undisclosed income or assets under Black Money Act.
- Consequent to above findings, ITAT also deleted the penalties. ITAT clarified that BMA Act penalties (of section 41 and 43) are discretionary and cannot be imposed mechanically.
Hence, this Kolkata judgement has come as a very needed relief for many taxpayers (specifically Returning NRIs) who hold foreign assets/income and could not disclose it in their ITR, and later on started filing this information in FA schedule of ITR.
What If an NRI/OCI has returned back to India, but he does not have any taxable income in India. Whether that Returned NRI/OCI would still be required to report Foreign Assets Detail in ITR?
In any year, if a returning NRIs/OCIs becomes an Ordinary Resident In India (ROR) then he/she is under obligation to report their Foreign Assets as well Foreign Income in an ITR in India. Filing of ITR and reporting of Foreign Assets/Income will be mandatory in such cases even if there no income during the year or income is less than taxable limit. Hence, ITR filing (and reporting Foreign Assets/Income) by Returning NRIs/OCIs is mandatory once they are an Ordinary Resident. Though they should regularly file ITR even in those years when they are Non-resident or Not Ordinary Resident.
What is Mumbai Income Tax Appellate Tribunal Ruling in relation to penalty under Black Money Act?
In case of Shobha Harish Thawani v. JCIT, Mumbai ITAT has upheld the decision of CIT(A). In this case, AO has levied penalty under section 43 of Black Money Act for non-furnishing/mis reporting of information in the the FA Schedule of ITR for AY 2016-17 to 2018-19. Aggrieved by the AO order, assessee filed appeal with CIT (Appeal), however, CIT (Appeal) has also upheld the decision of AO. ITAT held that facts are very clear that assessee has not reported or misreported the details of foreign assets. ITAT held that AO was judicious in his approach and he examined all the facts and then rightly applied the penalty provisions as per the facts of the case. It is also held that as per the facts there is no scope for non-levy of penalty under section 43 of Black Money Act 2015.
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