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Penalty for Non-Disclosure of Foreign Assets/Income in Income Tax Return

Penalty for Non-Disclosure of Foreign Assets in Income Tax Return (ITR) 2024

The disclosure of foreign assets in Income Tax Returns (ITR) is a critical requirement under the Indian tax laws. This measure ensures transparency, deters tax evasion, and aligns with global initiatives like the Automatic Exchange of Information (AEOI). Non-disclosure of such assets can attract severe penalties and legal consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”). Here’s an overview of the penalties for non-disclosure of foreign assets in ITR for the assessment year 2024-25 i.e. financial year 2023-24.

Key Requirements for Reporting Foreign Assets

Taxpayers qualifying as residents and ordinarily residents (ROR) under the Income-tax Act, 1961, are required to disclose details of their foreign assets and income in Schedule FA of the ITR. The disclosure includes:

  1. Foreign Bank Accounts: Account details, balances, and interest income.
  2. Immovable Property: Address, cost, and other particulars of foreign real estate.
  3. Financial Interest: Investments in foreign entities, shares, and other securities.
  4. Trusts or Entities: Beneficiary details in foreign trusts or entities.
  5. Any Other Asset: Such as intellectual property rights, deposits, and loans.

Penalties for Non-Disclosure

1. Under the Income-tax Act, 1961:

If a taxpayer fails to disclose foreign assets or income in the ITR, the following penalties may apply:

  • Penalty for Misreporting:
    If the non-disclosure results in underreporting of income, a penalty equal to 200% of the tax evaded may be levied under Section 270A.
  • General Penalty under Section 271:
    For failure to furnish accurate particulars, a penalty of up to ₹10,000 can be imposed.

2. Under the Black Money Act:

The Black Money Act applies specifically to undisclosed foreign assets and income. Penalties include:

  • For Non-Disclosure:
    A penalty of up to ₹10,00,000 can be levied, irrespective of whether the taxpayer has taxable income from such assets.
  • Prosecution:
    Non-disclosure of foreign assets can lead to imprisonment for 3 to 10 years, along with fines.
  • Tax Liability:
    Undisclosed foreign income is taxed at a flat rate of 30%, without any exemptions or deductions.
  • Additional Penalty:
    If an asset is deemed undisclosed under the Black Money Act, an additional penalty of three times the tax payable may be imposed.

Voluntary Disclosure to Avoid Penalties

Taxpayers who have inadvertently omitted foreign assets or income should consider making a voluntary disclosure. By filing a revised return before the due date or during scrutiny, the penalty exposure can be reduced, and prosecution avoided.

If foreign assets and income were not disclosed in the original return for FY 2023-24, they can be declared by filing a revised return before December 31, 2024.

Global Collaboration and Enhanced Enforcement

India’s participation in global tax transparency initiatives such as the Common Reporting Standard (CRS) has increased the government’s access to information on foreign accounts and assets. Non-compliance is likely to be detected due to automated information exchanges between countries.

Steps to Ensure Compliance

  1. Review Past Returns: Ensure foreign assets have been correctly disclosed.
  2. Consult Professionals: Engage tax professionals for accurate reporting.
  3. Maintain Records: Retain documentation supporting ownership, income, and valuation of foreign assets.
  4. Timely Filing: File ITR before the due date, avoiding late fees and interest.

Conclusion

The penalties for non-disclosure of foreign assets are stringent, reflecting India’s commitment to combating black money and tax evasion. Taxpayers must be vigilant about reporting their foreign holdings to avoid penalties and comply with domestic and international laws. As global scrutiny increases, adhering to disclosure norms is not just a legal obligation but also a prudent financial practice.

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EXTENSION OF TIME LIMITS OF CERTAIN COMPLIANCES UNDER INCOME TAX ACT- REF CIRCULAR NO.9/2021 DATED 20TH MAY 2021.

The Central Board of Direct Taxes, in the exercise of its power under section 119 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) provides relaxation in respect of the following compliances:

  1. The Statement of Financial Transactions (SFT) for the Financial Year 2020­21, required to be furnished on or before 31st May 2021 under Rule 114E of the Income-tax Rules, 1962 (hereinafter referred to as “the Rules”) and various notifications issued thereunder, may be furnished on or before 30th June 2021;
  2. The Statement of Reportable Account for the calendar year 2020, required to be furnished on or before 31st May 2021 under Rule 114G of the Rules, may be furnished on or before 30th June 2021;
  3. The Statement of Deduction of Tax for the last quarter of the Financial Year 2020-21, required to be furnished on or before 31st May 2021 under Rule 31A of the Rules, may be furnished on or before 30th June 2021;
  4. The Certificate of Tax Deducted at Source in Form No 16, required to be furnished to the employee by 15th June 2021 under Rule 31 of the Rules, may be furnished on or before 15th July 2021;
  5. The TDS/TCS Book Adjustment Statement in Form No 24G for the month of May 2021, required to be furnished on or before 15th June 2021 under Rule 30 and Rule 37CA of the Rules, may be furnished on or before 30th June 2021;
  6. The Statement of Deduction of Tax from contributions paid by the trustees of an approved superannuation fund for the Financial Year 2020-21, required to be sent on or before 31st May 2021 under Rule 33 of the Rules, may be sent on or before 30th June 2021;
  7. The Statement of Income paid or credited by an investment fund to its unit holder in Form No 64D for the Previous Year 2020-21, required to be furnished on or before 15th June 2021 under Rule 12CB of the Rules, may be furnished on or before 30th June 2021;
  8. The Statement of Income paid or credited by an investment fund to its unit holder in Form No 64C for the Previous Year 2020-21, required to be furnished on or before 30th June 2021 under Rule 12CB of the Rules, may be furnished on or before 15th July 2021;
  9. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 31st July 2021 under sub-section (1) of section 139 of the Act, is extended to 30th September 2021;
  10. The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, which is 30th September 2021, is extended to 31st October 2021;
  11. The due date of furnishing Report from an Accountant by persons entering into international transaction or specified domestic transaction under section 92E of the Act for the Previous Year 2020-21, which is 31st October 2021, is extended to 30th November 2021;
  12. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 31st October 2021 under sub-section (1) of section 139 of the Act, is extended to 30th November 2021;
  13. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 30th November 2021 under sub-section (1) of section 139 of the Act, is extended to 31st December 2021;
  14. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 30th November 2021 under sub-section (1) of section 139 of the Act, is extended to 31st December 2021;

Clarification 1: It is clarified that the extension of the dates as referred to in clauses (9), (12) and (13) above shall not apply to Explanation 1 to section 234A of the Act, in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds one lakh rupees.

Clarification 2: For the purpose of Clarification 1, in case of an individual resident in India referred to in sub-section (2) of section 207 of the Act, the tax paid by him under section 140A of the Act within the due date (without extension under this Circular) provided in that Act, shall be deemed to be the advance tax.

CIRCULAR 9 OF 2021_CBDTDownload