Income Tax Returns (ITR) filing: Save yourself from black money crackdown, Rs 10 lakh fine; this is how

Income Tax Returns (ITR) filing: Filing tax returns is a challenge in itself! There are various sections and lists that one needs to remember while filing tax returns.

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Income tax returns (ITR) filing: As the deadline nears for tax filing on July 31, the Income Tax Department has been issuing advertisement guiding taxpayers over their ITR filing on multiple occasion. While some try to still get cracking and follow proper procedures for filing ITR, either online or taking help of Chartered Accountants (CAs), some simply get frustrated by the fact that it requires them to recall and keep track of what they spent their money on or saved. Filing tax returns is a challenge in itself! There are various sections and lists that one needs to remember while filing tax returns.

Archit Gupta, Founder & CEO ClearTax said, "In the recent years the government has been taking several measure to curb black money and control the outflow of money outside India. With this objective in mind, in financial year 2011-12 the government introduced the mandate of disclosure of foreign assets owned in the annual income tax return by the taxpayers."

For those of you who own any foreign assets, let's understand the compliances for reporting these assets, as per ClearTax.

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Applicability and details to be reported

Every individual who is resident in India according to the income tax act and is holding foreign assets must disclose this information in his return of income. A person who is non-resident or a resident but not ordinarily resident is not bound by this mandate. A foreign asset has been defined to include bank accounts held overseas, financial interest in any entity outside India, immovable property or other assets located outside India etc

The reporting requirements have been discussed a little more in detail here:

Bank accounts

The reporting requirement for bank accounts include name of country and code, name and address of the bank, account number, name of the account holder, date of account opening, the maximum balance maintained in the account during the year and the interest earned on it (if any) and the interest that has been offered to tax in the return. The aforesaid details must be reported for every account held outside India even if there are multiple accounts in the same bank.

Financial interest

In relation to financial interest details such as country name and code, name and address of entity in which the taxpayer has financial interest, nature of interest, date of investment, total investment at cost (in Indian Rupees), income accrued from investment and the quantum of income offered to tax need to be disclosed.

If a person moved to India from UK fifteen years ago, but continues to hold investments and shares of companies there. Apart from the investments he is also receiving a pension from UK. In this instance, the person will be required to report all his investments and income at the time of filing his returns.

Immovable properties

If a person owns any immovable property the details to be reported include country name and code, address, nature of ownership, date of acquisition, total investment at cost (in Indian Rupees), income from the property and quantum of such income offered to tax in the return must be disclosed.

In case the individual has inherited the property without incurring any cost, such property needs to be reported at nil value.

Other Capital Assets

Details similar to what must me reported in the case of immovable property need to be disclosed here too if at all applicable.

Accounts with Signing Authority

Details such as name and address of the institution where account is held, name of account holder, account number, account peak balance, total investment during the year (in Indian Rupees) and income accrued (if taxable in taxpayer’s hands) are to be disclosed.

Trusts

Details such as country name and code, name and address of the trust, name and address of trustees, name and address of settler, names and addresses of beneficiaries, date since which position is held and income derived (if taxable in taxpayer’s hands) are to be disclosed.

In case of income derived from foreign assets and sources which is not covered in the above heads, a residual head called ‘Other incomes’ is available where details such as country name and code, name and address of person from whom income is derived, amount, and nature of income are to be furnished.

Reporting in the Income Tax Returns

Persons eligible to report Foreign Assets must report it under Schedule FA provided for in ITR 2 or ITR 3, as applicable.

Foreign assets held need to be reported in Indian Rupees.The rate of exchange for conversion in rupees of such foreign asset shall be the telegraphic transfer buying rate of such currency. Foreign assets held jointly need to be disclosed at their full value by each of the joint owners to whom the reporting requirement is applicable. The income earned from these assets may be taxed based on the respective owner's share.

Apart from the value or cost of foreign assets, the income earned from these asset, along with the nature of such income and head of income under which such income is taxed in the return, needs to be reported in relation to each asset.

Consequences of not reporting the Foreign Assets

The Black Money Imposition of Tax Act provides for increased tax and penal consequences for not disclosing the foreign assets. Undisclosed foreign incomes and assets will be taxed at a flat rate of 30%. Further, there are significant monetary penalties (up to 300% of the tax) which may be imposed, along with the risk of criminal prosecution.

In addition to the above if the person reports incorrect information or fails to report any information, such default could also attract a penalty of Rs 10 lakh.

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