I-T relief for employees working overseas: No jail for not reporting low-value foreign assets

No imprisonment for not reporting foreign assets worth Rs 20 lakh , CBDT clarifies

The income-tax department has announced that it will not initiate proceedings against individual taxpayers who fail to disclose overseas financial assets valued at up to Rs 20 lakh.

At present, non-disclosure of such assets can invite imprisonment ranging from six months to seven years, though this is seldom invoked in cases involving individual taxpayers' low-value foreign assets, say chartered accountants.

In an August 18 circular, the Central Board of Direct Taxes (CBDT) said prosecution proceedings would not be initiated… “where penalty under Section 42 and/or 43 of the Black Money Act, 2015 is not imposed or imposable in relation to…asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed a value equivalent to Rs 20 lakh at any time during the relevant previous year,” the notification said.

“(Until now) prosecution under Sections 49/50 was not to be initiated where penalty under Sections 42/43 was not imposable in respect of foreign bank accounts having an aggregate balance not exceeding Rs 5 lakh during the relevant previous year,” said chartered accountant Himank Singla, partner, SBHS Associates.

New rule to help less-informed taxpayers

In recent years, many employees of multinational companies, IT professionals and others deputed abroad have been caught unawares for failing to disclose their foreign bank accounts, ESOPs and pension accounts in their income tax returns.

Until FY 2023-24, inaccurate disclosure or failure to disclose foreign assets in the ITR attracted a penalty of up to Rs 10 lakh under the black money and imposition of tax act, 2015, in addition to prosecution proceedings.

Also read: No penalty for non-disclosure of foreign ESOPs, pension assets worth up to Rs 20 lakh: Budget 2024

A leaf out of Budget 2024

In the July 2024 Budget, finance minister Nirmala Sitharaman had relaxed some of the rules. Since FY25, non-reporting of movable foreign assets worth up to Rs 20 lakh does not attract Rs 10 lakh penalty.

The announcement brought relief to employees of multinational companies who may have been eligible for ESOPs, besides being required to open bank accounts and enrol in social security schemes abroad.

CBDT’s latest move completes the protection mechanism for such taxpayers who inadvertently, due to lack of knowledge about disclosure rules, fail to report these assets in their ITR. "The instruction aimed to protect individuals holding foreign accounts with minor balanced that might not have been reported due to oversight or ignorance, by providing that non-disclosure of such accounts will not attract penalty or prosecution," the CBDT said in its circular.

Also read: Top five changes in income tax rules in 2024

“Thus, both penalty and prosecution provisions stand inapplicable in respect of minor-value foreign assets not exceeding Rs 20 lakh. Do note, however, that immovable property remains outside the scope of this relaxation,” Singla said.