Foreign assets and the Black Money Law: What resident Indians must know?

 

 

With increasing global exposure, many Indian residents today hold foreign bank accounts, overseas investments, properties abroad, or earn income from outside India. What many taxpayers overlook is that once an individual qualifies as a resident under Indian income tax law, disclosure of foreign income and foreign assets becomes mandatory and non-negotiable. This obligation arises not only under the Income-tax Act, 1961, but is also reinforced by the stringent provisions of the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. The Black Money Act, effective from July 1, 2015, specifically targets undisclosed foreign income and assets held by residents of India. While the Act does not apply to non-residents, its scope for residents is extremely wide. Importantly, foreign assets must be disclosed even if they have not generated any income during the year. Foreign assets include overseas bank accounts, foreign shares and investments, financial interests in foreign companies or partnerships, immovable property located outside India, cash value insurance policies issued abroad, interests in foreign trusts (as trustee or beneficiary), and even signing authority over foreign bank accounts.

 

Foreign income covers interest, dividends, rental income, business profits, capital gains, or any income arising from sources located outside India. Disclosure must be made using the correct Income Tax Return (ITR) form. Residents must file an appropriate ITR containing Schedule FA (Foreign Assets), Schedule FSI (Foreign Source Income), and Schedule TR (Tax Relief) where foreign taxes have been paid. Where relief under a Double Taxation Avoidance Agreement (DTAA) is claimed, Form 67 must also be filed mandatorily. A common and serious compliance lapse arises when residents either fail to disclose foreign assets or file returns using an incorrect ITR form. While errors can be corrected through revised returns within prescribed timelines, ignoring such lapses can have severe consequences. Non-disclosure of foreign assets can attract a penalty of ?10 lakh per year, and where undisclosed foreign income or assets are detected, tax and penalty together can go up to 120 percent of the value involved, along with prosecution provisions.

 

It is equally important to understand who is not covered. Non-Resident Indians living abroad are not required to disclose foreign assets or foreign income in Indian tax returns, provided their residential status is correctly determined. However, individuals returning to India often continue filing returns incorrectly without reassessing their global disclosure obligations. In an era of increased international information exchange and heightened scrutiny of offshore holdings, resident Indians must proactively review their tax filings. Correct determination of residential status, proper ITR selection, and complete disclosure of foreign income and assets are essential to remain compliant and avoid the harsh consequences of the Black Money law. (The author is practicing chartered accountant)