Who is Required to Report Foreign Assets in ITR?

One practical issue is the ITR form.

If you have foreign assets that require disclosure, don't automatically select ITR-1 just because you're a salaried individual. The Income Tax Department specifically states that ITR-1 and ITR-4 don't contain Schedule FA, FSI, or TR, and taxpayers with foreign assets/income need to use the appropriate ITR other than those forms.

For example, ITR-2 is available to individuals and HUFs, including residents and non-residents, who don't have income chargeable under "Profits and Gains of Business or Profession."

I think this is where a lot of people get confused. The question isn't simply "Do I have a foreign bank account?" It's:

What is my Indian tax residential status + what foreign assets/income do I have + which ITR applies to my circumstances?

I'd verify all three before filing.

I would also be careful about the idea that foreign assets only have to be reported when they generate income.

The current Income Tax Department guidance says residents must disclose foreign assets/accounts where they are the legal owner, beneficial owner or beneficiary, and Schedule FA covers several categories, including foreign bank/depository accounts, custodial accounts, foreign equity/debt interests, financial interests in entities, overseas immovable property and other capital assets.

So, for an ordinarily resident taxpayer, simply saying "there was no interest or dividend" isn't necessarily enough to conclude that there is nothing to disclose.

The reporting can also cover assets held during the relevant period, not just something that happened to be sitting in the account on the last day of the year. The current guidance refers to foreign assets/accounts held at any time during the relevant calendar year ending December 31.

I'd therefore make a list of all foreign accounts, investments and property first, then determine whether Schedule FA applies based on your residential status.

The biggest distinction, in my experience, is your Indian tax residential status.

Schedule FA is specifically for reporting foreign assets and income from foreign sources. The current Income Tax Department guidance says Schedule FA need not be filled by a Non-Resident or a Resident but Not Ordinarily Resident (RNOR). That means the requirement generally becomes relevant when you're a resident who is not RNOR — essentially, an ordinarily resident taxpayer.

I had initially assumed that because I was an NRI with a foreign bank account, I needed to put the account into Schedule FA every year. That wasn't the right way to look at it.

The first thing is to establish your Indian residential status for the relevant financial year. If you're genuinely non-resident under Indian tax rules, the Schedule FA requirement doesn't apply in the same way.

Also, don't confuse foreign asset disclosure with foreign income taxation. Those are related but separate questions.

Foreign assets can be reported by the beneficial owners, beneficiaries of the foreign assets, residential individuals, and Hindu undivided families (HUF). It is very important to file the ITR. Here are some of the points that will help you to know more about it:

• Foreign Tax reports in the ITR are important because they help the Income Tax Department to get all the information about the foreign assets owned by individuals, HUFs, and residents, such as foreign income sources, bank accounts, real estate, interests, dividends, or capital gains they get from foreign sources. According to the Black Money Act, 2015, it is important for individuals to report their foreign assets and income in the foreign country. 
• Reporting of the foreign assets helps the individual taxpayer to get claims on the tax paid in a foreign country, and allows the benefits of the Double Taxation Avoidance Agreement (DTAA). 
• It is important to disclose your foreign assets in the ITR filing. If you failed to do so, you can get a penalty of 10 lakh INR from the Income Tax Department. 
• Providing the foreign assets reports in the ITR helps the Income Tax Department to track taxpayers' global foreign holdings and ensure that they are meeting all the tax liabilities. 

Here is the penalty for not reporting your foreign assets in the ITR. 

1. If you don't report your foreign assets, then you can get a penalty of 10 lakhs INR. 
2. For not reporting the foreign assets in your ITR, you could be jailed for 7 years, considering willful evasion of tax. 
3. You cannot get the double taxation avoidance agreement if you don't report your foreign assets, which results in the revocation of the right to claim tax benefits under DTAA.