Last Updated on – August 06, 2025
The regulatory landscape in India & across the world is fast changing. Countries are increasing becoming aware of the risks of tax evasion & are creating new mechanisms like the CRS and India also enacted Black Money Act in 2015, which mandates disclosures by Indian residents of foreign assets and stringent penalties for failure to disclose or offer income from those assets to tax in India.
In my work with the returning NRI clients on filing their Indian tax returns and advisory on Indian tax law, I find that those who go out of India on long term assignments say H1B in US mostly end up purchasing financial or real assets in that country, like 401K, Traditional/Roth IRA, HSA, 529 plans etc.
Also read: What to do with my 401K on Return to India?
Here, the most common misconception that I come across is the view that if an income has been taxed abroad, it does not need to be disclosed in the Indian tax return. This is a completely wrong notion and can pose you in deep trouble if your case is picked by the income tax department in the scrutiny assessment.
Also read: Black Money Act: An Analysis
The basic point is this: If your tax residential status in India is “Resident and Ordinarily Resident (ROR) (which you become within a couple of years on return to India), you become liable under the Income Tax Act to disclose and pay tax on your WORLDWIDE income & assets.
Also read: How NRI/PIOs can decode the Indian tax residency rules & save tax
Of course, if you’ve paid taxes abroad on those incomes, you’ll be able to claim DTAA relief if both countries have a DTAA in place, but that’s a secondary point. Main consideration is on proper disclosures in your tax return in India, which if not made can land you in deep trouble.
An important point in streamlining of finances involves a decision whether to continue or liquidate those assets (especially where client has returned permanently to India & has no plans to go back). But even there, some foreign assets (like 401K) cannot be liquidated easily without incurring huge penalties, and once the residential status changes to ROR, this is a very important piece that we have to take care when filing client’s tax returns.
Also Read: Returning NRI Financial Checklist
First let us discuss the provisions around this issue in brief so that you get an idea of your legal obligations:
What constitutes foreign income or asset under Indian tax law?
Foreign income or asset has not been expressly defined under the Income Tax Act & we have to take the general interpretation of the wordings.
Some of the examples can be as follows:
- Dividend/ capital gains from your shares of foreign companies
- Income from a 401K investment in USA
- Income of freelancers from foreign clients
- Your stint/project/full time employment for an employer based out of India & receipt of income
- If you are a blogger and run Google Adsense on your website & earn an income from that
- If you own a house property abroad, then rentals/ capital gains if the same is sold
- Income from trust set up outside India
When we speak of the assets, following are some examples:
- Shares/bonds/ ETF/ mutual funds/ other investments(e.g. 401k plans in USA)
- ESOP/ ESPP/ RSU given by your employer outside India
- House property purchased abroad
- As a settler or beneficiary of a trust set up outside India
- Bank accounts abroad
- Beneficial interest in an investment or a trust set up outside India
- Signing authority for any account/asset outside India
- Pensions outside India (example: QROPS pension in UK)
Income tax rules on foreign income/ assets
A new proviso to Section 139(1) had been introduced by Finance Act, 2015 w.e.f. 1/04/2015 and modified by Finance Act, 2016 and stands as follows:
Provided also that a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6, who is not required to furnish a return under this sub-section and who at any time during the previous year,—
(a) holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India; or
(b) is a beneficiary of any asset (including any financial interest in any entity) located outside India,
shall furnish, on or before the due date, a return in respect of his income or loss for the previous year in such form and verified in such manner and setting forth such other particulars as may be prescribed:
Provided also that nothing contained in the fourth proviso shall apply to an individual, being a beneficiary of any asset (including any financial interest in any entity) located outside India where, income, if any, arising from such asset is includible in the income of the person referred to in clause (a) of that proviso in accordance with the provisions of this Act:]
Basis an understanding of above provision & the instructions on return filing, I’ve tried to compile a residential status wise disclosure requirement as follows:
| Residential status | Foreign income/asset disclosure required in tax return? |
| Non Resident (NR) | No |
| Resident & Not Ordinary Resident (RNOR) | No |
| Resident & Ordinary Resident (RNOR) | Yes, applicable: Return has to be filed even if income is below exemption limit. And when filing the return, necessary disclosures have to be made. |
Hence, as I had covered in my earlier post on whether an NRI needs to file a return in India, if a person retains an NR/RNOR status and escapes requirement of filing tax return, the point on disclosure does not arise, However, once a person acquires ROR status, then even if income is below taxable limit he will need to file a return & disclose foreign assets/ income.
Persons exempt from the above disclosure requirement
Following persons are exempt:
- Non resident (NR) /Resident but Not Ordinarily Resident (RNOR) in previous year as per Section 6 of Income Tax Act
- Beneficiary of any asset (including any financial interest in any entity) located outside India where, income is included in return filed by beneficial owner
- Person who fulfil below conditions:
- He is NOT a citizen of India
- He is in India on a business, employment or student visa
- Asset was acquired when he was a non-resident
- No income is derived from that asset in the previous year
Point no. 3 has been included apparently to exempt overseas expats and foreign students. However, in case the asset concerned has yielded even a single rupee of income in the previous year, the concerned expat/student has to file the tax return in India & disclose both the income as well as the asset in the concerned schedules in the tax return.
It is difficult for me to understand which assets will qualify here – practically, all investments will earn some return, be it bank interest or dividend – government should have prescribed a threshold criteria to help expats/students get the intended benefit of exemption.
Which income tax return to select for disclosing foreign income/asset?
If you have any foreign income/asset, you cannot select ITR-1 or ITR-4 because it does not allow you to enter the details pertaining to foreign income & assets.
Hence, you will need to select either ITR 2 or ITR 3. Let us understand which income tax you’ll need to select. That will actually depend on which type of income you have. If you dont have income from business or profession, you can use ITR 2 else use ITR 3.
You can download the excel utility of these forms by visiting the Income Tax e-filing website www.incometaxefiling.gov.in or you can consult your CA to file your tax return.
Schedules for entering foreign income/asset details & points to note
Now, once you’ve downloaded the ITR utility, open the excel workbook (don’t forget to enable the macros). In the “Home” tab, you’ll see the following relevant schedules:
| Schedule Name | Details |
| Schedule FSI | Details of Income accruing or arising outside India |
| Schedule TR, Schedule FA | Schedule TR: Details of tax relief claimed under Section 90/90A/91’ Schedule FA: Details of foreign assets |
As an example, I have given below the information required:
Foreign Bank Accounts:
- Country Name and Code
- Name of the Bank
- Address of the Bank
- Account holder name
- Status (Owner/Beneficial Owner/Beneficiary)
- Account Number
- Account opening date
- Peak Balance during the Year (in rupees)
- Interest accrued in the account
Immovable property/ Other asset:
- Country Code
- Address of the Property
- Ownership
- Date of acquisition
- Total Investment (at cost) (in rupees)
- Income derived from the property
- Nature of Income
So, before filling the schedules, you have to have the bank statements, 401K statements
How to fill 401K income/assets in tax return?
401K taxation is a grey area under ITA. I have written a detailed post on this request you to first please check it: What to do with my 401K on Return to India?
Coming to 401K, I assume you’re a ROR, you’ve not made any withdrawal from 401K during the financial year and you have obtained account statement for period April 1- March 31 from your 401K provider. My approach is as follows:
In Schedule FSI, do not disclose any income – this is with the understanding that income from 401K is in nature of capital gain and will arise ONLY when you withdraw your units.
In Schedule FA, you will need to disclose both the brokerage and the underlying securities as follows –
Brokerage – in Table A2 (Custodian account) – this in my view, is in correct alignment to definitions given in Rule 114F of Income Tax Rules which define these terms)
Underlying securities need to be disclosed in respective table like for shares, one can disclose in Table B and so on.
One very important thing to understand is that this is disclosure schedule and not a computational schedule – nothing disclosed in this schedule affects your tax calculation and liability. The important thing is to disclose the foreign asset and not fret too much on the minor details.
There are so many points in this schedule where a clarification by the Income Tax department can be very helpful.
What is the penalty for non-furnishing of tax return in case of foreign assets?
Under the ITA, whereas there is a meagre penalty (via late fee) for non-filing of tax return of INR 5,000 under Section 271F of the Act, not disclosing foreign assets where they need to be disclosed (i.e. person is in ROR status) carries a flat INR 10 lac penalty per year as well as prosecution risk.
Penalty: Flat penalty of INR 10 lacs for every assessment year where:
- Return was due to be furnished but not furnished
- Return was furnished but did not contain proper details of foreign assets
Prosecution: Rigorous imprisonment for anywhere between 6 months to 7 years
Please note that vide Finance (No. 2) Act, 2024, there is a beneficial provision wherein non-disclosure of moveable property (e.g. stocks) below INR 20 lacs will not attract INR 10 lacs -penalty. It remains to be seen whether tax department will extract it to violations for previous years – there are judgements wherein it has been held that for benevolent provisions the benefit should be given retrospectively.
Also read:
Why Returning NRIs should continue filing tax returns even if no taxable income
In view of this, I advise readers to take this compliance very very seriously and always be on the right side of law.
Important points on filling the foreign income/asset schedules
Some important points to note while filling the schedules are as follows:
- Income from Salary, HP and other sources cannot be left blank: if there is no income from these sources, then mention 0 (zero)
- Once you fill Schedule FSI, Schedule TR will be auto populated with the details of Schedule FSI
- Don’t forget to enter DTAA article or enter NA if no agreement exists between countries (Section 91 of the Income Tax Act applies to such case)
- In schedule TR, you’ll be asked to select the section 90, 90A, 91. Before filling, please understand the meaning below:
- Section 90: Where DTAA exists between countries
- Section 90A:Where a specified association
- Section 91: Where DTAA does not exist between countries
- You’ll have to disclose ALL foreign bank accounts irrespective of the amount
- You are also required to check your tax refunds received outside India during the financial year and in case you had claimed it as tax credit for a previous year, you’ll have to mention that in Schedule TR.
- Exchange rate for conversation of income/asset can be taken as SBI’s Telegraphic Transfer (TT) buying rate as on the date of credit in your foreign bank account.
- In case of joint foreign bank accounts or investments like IRA, your spouse must also file the tax return and disclose the details in her return even if her income is below exemption limit. If spouse is a beneficiary and other spouse has disclosed the interest in his tax return, then first spouse doesn’t need to disclose.
- For the income/assets that you are making a disclosure, preserve hard copy documentation of credits/certificates, workings on the exchange rate conversion etc. to support your case in case later your case is picked up in scrutiny.
What to do if you’ve forgotten to disclose for a particular year
First you should check if there’s a possibility to file/revise the latest year return – if yes, go ahead and file/revise as applicable – in case of a notice for previous years, this act of yours will strenghen your point that there was no intention to not disclose the income.
Second, go back and file updated returns for previous years – with new amendments, I think its possible to go back upto past 4 years and amend the returns. However, there may be an issue with the income tax utility not available for some years – to the extent utility is available, file asap. however the hitch in filing updated returns is that you need to disclose some extra income and pay tax – now if you dont legally have an additional income to disclose for that year, the route is closed.
Another and final option if updated return route is not available or violations relate to years prior to updated returns window (remember, the penalties flow from Black Money Act which does not have any statute of limitation), you can make an application to Assessing Officer disclosing the fact and allowing you to file the returns. However, this option is risky and need to be carefully weighed before acting upon and a opinion from a tax professional should be taken before moving forward.
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