ITR Filing 2026: The Income Tax Department has made the tax return filing season for the financial year 2025-26, assessment year 2026-27, a bit complex
for those who hold foreign retirement accounts. Let’s understand it with an example. Suppose you returned to India from the US in mid-August after working there for two years. Since you always planned to return, you did not invest in US stocks, mutual funds, or bonds. However, your employer had enrolled you in a retirement plan, such as a 401(k), which you never considered an investment. Now, you qualify as a resident and ordinarily resident (ROR) taxpayer in India. Your only income is a salary of less than Rs. 50 lakh from your Indian employer. So, you assume you can file the simple ITR-1 (Sahaj) form, just as you did in previous years. You will not be able to use ITR-1 now if you hold foreign retirement accounts. You will, therefore, have to file the more complex ITR-2, and make multiple, detailed disclosures in Schedule FA (foreign assets) and other documents. This change corrects an anomaly and clarifies that individuals with foreign income or assets cannot use ITR-1. Those with business or professional income can use ITR-3. Read more: HDFC mutual funds: 5-star-rated schemes that delivered over 15% CAGR in 5 years - LIST
ITR Filing 2026: 5 foreign income and overseas asset disclosure mistakes you must avoid
1. Correct disclosure is the first step towards avoiding notices from the Income Tax Department
Although the new scheme has not yet been officially notified, taxpayers who have foreign income or overseas assets should be careful while filing their income tax returns. Correct disclosure is the first step towards avoiding notices from the Income Tax Department.
However, many taxpayers either fail to report or under-report their foreign income and assets. This includes overseas brokerage accounts and investments held through them. People also often miss reporting foreign shares, Restricted Stock Units (RSUs), Employee Stock Options (ESOPs), and Employee Stock Purchase Plan (ESPP) holdings, assuming these do not need to be disclosed in India.
As tax authorities increasingly monitor overseas assets through global information-sharing systems, resident and ordinarily resident (ROR) taxpayers must ensure they accurately disclose all foreign assets and income in their tax returns.
2. Many taxpayers continue to wrongly assume that foreign assets remain outside the tax radar unless funds are transferred to India
Tax authorities have access to international information-exchange frameworks such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), which means overseas income is unlikely to go unnoticed.
3. ITR Filing 2026: First check if you are ROR, RNOR or Non-Resident
A resident individual will generally qualify as RNOR (Resident but Not Ordinarily Resident) if he has been a non-resident in 9 out of the 10 preceding financial years, or has stayed in India for 729 days or less during the 7 preceding financial years. Once these conditions are no longer satisfied, the individual becomes an ROR (Resident and Ordinarily Resident).
4. Disclose Foreign Income
The disclosure requirement is not limited to people returning to India after working abroad. If you are a resident and ordinarily resident (ROR) in India and earn income from overseas while living here, you must also report it in your income tax return.
For example, you may be a tax consultant providing services to clients in the US or a content creator earning payments from a company based in Dubai. Even though you work from India, this foreign income must be disclosed in your ITR as per the applicable tax rules.
5. TR (tax relief) and FSI (foreign source income) in ITR: Key factors to keep in mind
Schedule TR relates to claiming the foreign tax credit. Here, you have to report the amount of tax paid outside India and the tax credit available in India, so that the same income is not taxed twice.
Taxpayers must report the details of the foreign income, the corresponding article of the DTAA, the tax paid on income earned outside India, the tax payable on such income in India, and the tax relief available. Schedule FA goes a step further; it requires details of the foreign assets you hold, along with the income earned from outside India.
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