The Income Tax Department has released guidelines on how to report foreign income. In a bid to strengthen global tax transparency and combat evasion, frameworks like the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) have been implemented to ensure taxpayers disclose their global income and assets accurately.
What Are CRS and FATCA?
The CRS, developed by the OECD, requires financial institutions to report details of accounts held by foreign residents to their respective tax authorities. This information is shared annually among participating countries.
Similarly, the FATCA, enacted by the United States, mandates foreign financial institutions to report accounts held by U.S. taxpayers to the IRS. Both frameworks aim to enhance transparency and ensure taxpayers fulfill their global tax obligations.
How Does India Benefit?
India, as a participant in CRS and FATCA, receives detailed data about financial accounts held by Indian residents abroad. This includes:
- Account holder’s name, address, and tax identification number (TIN)
- Account balance and other financial details
- Income from sources such as interest, dividends, and capital gains
This information helps the Income Tax Department identify residents who may not have declared their foreign income or assets.
Disclosure Requirements in India
Under the Income-tax Act, 1961, residents must declare foreign assets and income when filing their tax returns. Key schedules include:
- Schedule FA (Foreign Assets): For reporting foreign assets.
- Schedule FSI (Foreign Source Income): For declaring foreign income.
- Schedule TR (Tax Relief): For claiming relief on taxes paid abroad.
Failure to disclose can lead to penalties and prosecution under the Black Money Act, 2015, making compliance critical.
Why Transparency Matters
- Encourages Compliance: Transparent tax reporting builds trust with authorities and avoids scrutiny.
- Legal Protection: Full disclosure prevents penalties and legal actions.
- Claiming Tax Relief: Accurate reporting enables relief on taxes paid abroad, avoiding double taxation.
- Supports National Development: Proper tax payments contribute to funding public services and infrastructure.
Opportunity to Revise Tax Returns
Taxpayers who missed reporting foreign income or assets can rectify errors by filing a revised return. For Assessment Year 2024-25, the deadline to file revised returns is extended to January 15, 2025.
Benefits of filing a revised return include:
- Ensuring complete and accurate disclosure.
- Avoiding penalties and legal consequences.
- Claiming eligible tax relief under Indian laws and double tax treaties.
Income Tax Department’s Reminder
As part of its e-campaign, the Income Tax Department urges taxpayers to disclose foreign income and assets accurately under CRS and FATCA. By doing so, individuals can:
- Avoid legal complications.
- Contribute to India’s development.
- Maintain compliance and a clear conscience.
Taxpayers are encouraged to use the extended deadline to file revised returns and ensure full transparency in their financial disclosures.
