What is the story about?
Indian taxpayers with overseas financial exposure must ensure correct disclosure of foreign assets and income in their income tax returns, as the Central Board of Direct Taxes (CBDT) steps up data-driven compliance checks under its NUDGE 2.0 initiative.
According to CA Shefali Mundra, Tax Expert at ClearTax, resident and ordinarily resident (ROR) taxpayers must disclose all foreign holdings and income, regardless of value, under India’s global income reporting framework.
Who must disclose foreign assets—and why ITR-1 and ITR-4 don’t apply?
Mundra explains that taxpayers classified as resident and ordinarily resident must report overseas bank accounts, foreign shares or securities, immovable property abroad, signing authority on foreign accounts, and beneficial interests in foreign entities.
These disclosures are mandatory under Schedule FA (Foreign Assets) and Schedule FSI (Foreign Source Income).
She notes that ITR-1 (Sahaj) and ITR-4 (Sugam) are designed for simple, domestic income profiles and do not contain these schedules.
Even a single foreign holding makes these forms invalid, requiring taxpayers to file ITR-2 or ITR-3, which support detailed foreign disclosures.
Reporting gaps flagged under NUDGE 2.0
Under the CBDT’s NUDGE 2.0 outreach, tax authorities have identified recurring disclosure gaps.
Mundra highlights that these include unreported ESOPs or RSUs issued by foreign parent companies, overseas trading or brokerage accounts—even if dormant—and foreign dividend or interest income that taxpayers may consider “too small” to report.
She adds that such omissions often surface through international information-sharing mechanisms like CRS and FATCA, even if taxpayers do not voluntarily disclose them.
How to revise returns correctly?
According to Mundra, to correct missed foreign disclosures, taxpayers must first switch to the correct ITR form—typically ITR-2 for individuals without business income, or ITR-3 for those with business or professional income. Revising an ITR-1 or ITR-4 alone will not activate the required foreign reporting schedules.
Once the correct form is selected, taxpayers should provide complete details of each foreign asset, including asset type, country, currency, valuation or balance, and related income. Amounts disclosed under Schedules FA and FSI must reconcile with total income figures and foreign tax credit claims under Schedule TR, to avoid mismatches flagged by the tax department.
Consequences of missing the December 31 deadline
Mundra warns that failing to revise returns by December 31 can lead to the return being treated as defective or incomplete, triggering scrutiny and compliance notices. Authorities may rely on overseas financial data to initiate assessments.
Under the Black Money (Undisclosed Foreign Income and Assets) Act, penalties for non-disclosure can be significant, with fines of up to ₹10 lakh per year of default. While recent budget measures provide limited relief for low-value foreign movable assets, Mundra stresses that complete and timely disclosure remains the safest compliance route.
According to CA Shefali Mundra, Tax Expert at ClearTax, resident and ordinarily resident (ROR) taxpayers must disclose all foreign holdings and income, regardless of value, under India’s global income reporting framework.
Who must disclose foreign assets—and why ITR-1 and ITR-4 don’t apply?
Mundra explains that taxpayers classified as resident and ordinarily resident must report overseas bank accounts, foreign shares or securities, immovable property abroad, signing authority on foreign accounts, and beneficial interests in foreign entities.
These disclosures are mandatory under Schedule FA (Foreign Assets) and Schedule FSI (Foreign Source Income).
She notes that ITR-1 (Sahaj) and ITR-4 (Sugam) are designed for simple, domestic income profiles and do not contain these schedules.
Even a single foreign holding makes these forms invalid, requiring taxpayers to file ITR-2 or ITR-3, which support detailed foreign disclosures.
Reporting gaps flagged under NUDGE 2.0
Under the CBDT’s NUDGE 2.0 outreach, tax authorities have identified recurring disclosure gaps.
Mundra highlights that these include unreported ESOPs or RSUs issued by foreign parent companies, overseas trading or brokerage accounts—even if dormant—and foreign dividend or interest income that taxpayers may consider “too small” to report.
She adds that such omissions often surface through international information-sharing mechanisms like CRS and FATCA, even if taxpayers do not voluntarily disclose them.
How to revise returns correctly?
According to Mundra, to correct missed foreign disclosures, taxpayers must first switch to the correct ITR form—typically ITR-2 for individuals without business income, or ITR-3 for those with business or professional income. Revising an ITR-1 or ITR-4 alone will not activate the required foreign reporting schedules.
Once the correct form is selected, taxpayers should provide complete details of each foreign asset, including asset type, country, currency, valuation or balance, and related income. Amounts disclosed under Schedules FA and FSI must reconcile with total income figures and foreign tax credit claims under Schedule TR, to avoid mismatches flagged by the tax department.
Consequences of missing the December 31 deadline
Mundra warns that failing to revise returns by December 31 can lead to the return being treated as defective or incomplete, triggering scrutiny and compliance notices. Authorities may rely on overseas financial data to initiate assessments.
Under the Black Money (Undisclosed Foreign Income and Assets) Act, penalties for non-disclosure can be significant, with fines of up to ₹10 lakh per year of default. While recent budget measures provide limited relief for low-value foreign movable assets, Mundra stresses that complete and timely disclosure remains the safest compliance route.
