ITR filing last date: Disclosing foreign assets in your ITR? Bear these points in mind

A beneficial owner is someone who has provided consideration for the purchase of an asset, for which they or another person can take benefit of the asset. A beneficiary is someone who has not paid for the purchase of an asset but derives benefit from the asset during the financial year.

Also read: Not disclosing foreign bank, pension accounts or other assets held abroad can trigger I-T notices | Simply Save

Taxpayers must report these details in the appropriate ITR form, i.e., ITR-2 or ITR-3, whichever applies. The following details should be provided while filing the ITR if the assessee has foreign assets, income or signing authority in foreign accounts during the relevant accounting period:

- Foreign depository/custodial accounts

- Investments in foreign equity/debt

- Surrender value of foreign insurance/annuity contracts

- Financial interest in any entity

- Immovable property

- Other capital assets

- Details of accounts in which there is signing authority

- Trusts in which the assessee is a trustee/beneficiary/settler

- Tax implications on stock trading

Also read: Avoiding double-taxation: How Form-67 can help you claim foreign tax credit

Tax treatment of US stocks, dividends

An increasing number of Indians are investing in overseas markets, with the popularity of US stocks, in particular, having grown multifold in the recent years.

When determining the tax in India on earnings from US stocks, dividends paid from US stocks must be considered. This amount is subject to a flat 25 percent tax rate in the US For example, if a firm declares a $100 dividend, you will receive $75 after tax. Due to the India-US tax treaty, this rate is lower than the regular tax rate for foreign investors in the US.

Furthermore, dividends received in cash or reinvested are taxed in India at applicable income tax slabs by adding these earnings to your existing income. However, the double taxation avoidance agreement (DTAA) between India and the US allows you to offset the tax withheld in the US against your Indian tax liability.

Capital gains on foreign shares

Another form of tax on US stock trading is capital gains tax. In the US, non-residents are not taxed on capital gains. For example, if you purchase shares for $500 and sell them for $800, you owe no tax in the US on the $300 capital gain. However, you are required to pay taxes on this gain in India.

Disclosure requirements under Schedule FA

Resident taxpayers (classified as resident but ordinarily resident) must mandatorily disclose all information about foreign assets and accounts in Schedule FA of the ITR form in a specified format. Non-resident or resident (but not ordinarily resident) individuals are not required to report in Schedule FA.

If a resident individual holds US equity shares, they must report it under ‘Investments in foreign equity/debts’ in Table A3 of Schedule FA. The following details need to be reported:

- Country name and code

- General information about the foreign entity, such as name, address, ZIP or postal code, nature of the entity

- Date of acquisition of equity or debt instrument

- Initial value of the investment

- Peak value of the investment during the accounting period

- Closing value of the investment at the end of the accounting period

- Gross interest received

- Total gross proceeds from sale or redemption of the investment during the accounting period

This information must be disclosed after conversion into Indian rupees. Even if holding US corporate bonds, you need to report these details in Schedule FA.

For instance, if you bought US stocks worth Rs 57,000 (converted price) in August 2019, you need to report these details in Schedule FA of ITR-2/ITR-3 for the 2019-20 fiscal. Assume that the accounting period of holding the foreign stocks is the financial year.

If you bought additional shares worth Rs 65,000 in August 2023, you have to report this in Schedule FA of the ITR for FY 2023-24. Similarly, shares bought in August 2022 must be reported if held in FY 2022-23.

Also read: Ten common mistakes you must avoid while filing returns at the last minute

When to report?

The reporting of foreign currency or assets in the ITR for 2023-24 will depend on the accounting periods of the foreign country as follows:

January 1-December 31, 2023: For foreign assets, foreign accounts, etc, acquired between January 1, 2023 ad December 31, 2023, in jurisdictions where the calendar year is used for closing of accounts and return filings.

April 1, 2023– March 31, 2024: For foreign assets, foreign accounts etc, acquired between April 1, 2023 and  March 31, 2024, in jurisdictions where the financial year is used for closing of accounts and return filings.

Any 12-month period ending after April 1, 2023: In cases where a different 12-month accounting or tax filing period is adopted.

For example, if a resident individual acquires a foreign asset in July 2023 in a country that follows the calendar year for tax filing, the individual must report it in the ITR for FY 2023-24. Similarly, foreign assets acquired in February 2024 must be reported in the ITR for FY 2024-25.

Rate of exchange for conversion

For converting foreign assets or foreign-sourced income into Indian currency, the rate of exchange to be used is the “telegraphic transfer buying rate”. This is the exchange rate adopted by State Bank of India for buying such currency, where the currency is made available to the bank through a telegraphic transfer.

Other reporting requirements

Resident individuals holding US stocks during the financial year (from April 1 to March 31, 2024) are also required to fill out the asset-liability schedule, that is, Schedule AL (if total income exceeds Rs 50 lakh), in addition to Schedule FA. The taxpayer must report assets and liabilities in Schedule AL, including:

Immovable assets: land and buildings

Financial assets: bank deposits, shares and securities, insurance policies, loans and advances, cash in hand

Movable assets: jewellery, bullion, vehicles, paintings, artworks, yachts, boats, aircraft, etc.

Taxpayer’s interest: in the assets of a firm or association of persons as a partner or member, respectively

Liabilities: relating to the above assets

By adhering to these disclosure requirements, resident Indians can ensure compliance with Indian income tax laws while holding foreign assets, including US stocks.