ITR and foreign income: What the Income Tax Department knows about your assets abroad

The Income Tax Department of India has intensified its efforts to track foreign income and assets held by resident taxpayers. Leveraging global data-sharing networks under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), the department aims to close loopholes for offshore tax evasion. This was mentioned in a recent document titled "Enhancing Tax Transparency on Foreign Assets & Income: Understanding CRS & FATCA," released on 17 July 2025.

CRS, an OECD initiative, facilitates the automatic exchange of financial account information between countries. As a participant, India annually receives data about financial accounts held by Indian residents abroad, including names, tax IDs, account balances, and income details. FATCA, although primarily a U.S. regulation, also helps India receive information on Indian residents who are U.S. taxpayers or hold relevant accounts. This collaboration ensures that the Indian tax authorities detect hidden incomes and unreported global holdings.

Reporting foreign assets

Under the Income Tax Act, 1961, Indian residents must declare all foreign assets and income through specific tax schedules. Schedule FA is used for disclosing foreign assets, Schedule FSI for income earned abroad, and Schedule TR for claiming tax relief on income taxed overseas. Additionally, Form 67 must be filed online before submitting the income tax return to avail of tax credits under the Double Tax Avoidance Agreement (DTAA). Non-compliance with these regulations can trigger severe penalties.

Penalties for non reporting assets

The consequences of not disclosing foreign income and assets are stringent. Taxpayers can face penalties of Rs 10 lakh for each undisclosed asset, an additional penalty equal to three times the tax due, and imprisonment ranging from six months to seven years. For example, capital gains on U.S. stocks or dividends from UK-based ETFs, if unreported, can result in these penalties even if taxes were paid abroad.

Double taxation

Indian residents can avoid double taxation through Sections 90/90A of the Income Tax Act, which provide relief under DTAA treaties, or Section 91, which offers unilateral relief if no treaty exists. To claim these, income must be reported in Schedule FSI, relief claimed in Schedule TR, and Form 67 submitted before filing the ITR. Failing to adhere to this process may lead to rejection of foreign tax credits.

Income from cryptocurrencies or non-fungible tokens (NFTs) must be reported under Schedule VDA. If these digital assets are held through foreign wallets or exchanges, they should also be declared in Schedule FA. Disclosures must include the date of purchase and sale, acquisition cost, sale consideration, and taxes paid, which are levied at a flat rate of 30% without deductions.

The importance of reporting foreign income has increased with the rise in international investments by Indian residents. In FY25, residents remitted over $1.69 billion abroad for equity or debt investments, a 12% increase from FY24. As such investments grow, so do the compliance risks, underscoring the need for accurate disclosures to avoid penalties.

With CRS and FATCA enabling real-time data exchange, the likelihood of evading scrutiny is low. The Income Tax Department has issued a clear message: voluntary disclosure of foreign income and assets is crucial, or taxpayers risk facing severe consequences.