Understanding CRS & FATCA for Reporting Foreign Assets and Income in ITR:
CRS & FATCA: In today’s interconnected global economy, tax transparency has become increasingly important to ensure that taxpayers accurately disclose their worldwide income and assets. To combat tax evasion and improve compliance, two key frameworks have been implemented: the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). These international regulations aim to foster transparency and cooperation among tax authorities globally.
Purpose of CRS and FATCA
Both CRS and FATCA are initiatives that facilitate the sharing of financial information between tax jurisdictions.
- CRS: Developed by the Organisation for Economic Co-operation and Development (OECD), CRS requires financial institutions to report financial accounts held by foreign residents to their respective tax authorities. These details are exchanged annually with participating countries to ensure accurate reporting of global income.
- FATCA: Enacted by the United States, FATCA mandates that foreign financial institutions disclose financial accounts held by U.S. taxpayers to the Internal Revenue Service (IRS). This law also aids in improving tax compliance by U.S. taxpayers abroad.
Information Received by India
Under both CRS and FATCA, India receives comprehensive details about the foreign financial accounts held by its residents. The information includes:
- Account holder details: Name, address, and Tax Identification Number (TIN)
- Account information: Account number, balance, and income such as interest, dividends, and other proceeds This allows the Income Tax Department to monitor the global income of its residents, ensuring proper disclosure of foreign assets and income.
Disclosure Requirements under Indian Law
According to India’s Income Tax Act, 1961, residents are required to report their foreign assets and income in their Income Tax Returns (ITR). Specific sections include:
- Schedule FA (Foreign Assets) for foreign assets
- Schedule FSI (Foreign Source Income) for foreign income
- Schedule TR (Tax Relief) for taxes paid abroad
Failure to disclose foreign assets and income can result in severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Therefore, accurate reporting is essential to avoid legal complications.
Benefits of Tax Transparency
- Compliance and Good Governance: Transparency in reporting foreign income and assets demonstrates a taxpayer’s commitment to legal compliance, ensuring smooth relations with tax authorities and avoiding unnecessary scrutiny.
- Legal Security: Full disclosure reduces the risk of penalties and legal consequences associated with non-disclosure of foreign income.
- Claiming Tax Reliefs: Accurate reporting enables taxpayers to claim tax relief on taxes paid abroad, preventing double taxation and optimizing tax liabilities.
- Contribution to National Development: By paying the correct taxes and declaring all income, individuals contribute to the nation’s growth and the availability of funds for essential services and infrastructure.
Opportunity to File Revised Returns
If you have previously failed to disclose your foreign assets and income in your original ITR, you can rectify the situation by filing a revised return. The deadline for filing revised returns for Assessment Year 2024-25 has been extended to 15th January 2025.
By submitting a revised return, you can:
- Ensure full disclosure of all foreign assets and income
- Avoid penalties and legal consequences for previous omissions
- Avail eligible tax reliefs under Indian tax laws and Double Taxation Avoidance Agreements (DTAAs)
This presents a valuable opportunity for taxpayers to maintain transparency and stay compliant.
Conclusion
The Indian Income Tax Department’s e-campaign emphasizes the importance of disclosing foreign assets and income in line with CRS and FATCA regulations. By adhering to these guidelines and ensuring full transparency, taxpayers can avoid legal complications, contribute to national development, and maintain peace of mind. If necessary, filing a revised return provides a way to make complete and accurate disclosures.
Step-by-Step Guide to Fill FSI, TR, and FA Schedules in ITR
- Schedule FSI – Details of Foreign Income and Tax Relief
- Purpose: This schedule is for residents reporting income earned outside India.
- How to Fill:
- Report the foreign income in the relevant sections, making sure to match it with the head-wise income computations.
- Specify the country code (using the ISD code) and Taxpayer Identification Number (TIN) of the country where taxes have been paid. If no TIN exists, provide the passport number.
- Mention the article of the relevant Double Taxation Avoidance Agreement (DTAA) and submit Form 67 for claiming foreign tax credit.
- Schedule TR – Summary of Tax Relief for Taxes Paid Abroad
- Purpose: This schedule summarizes the tax relief claimed for taxes paid outside India.
- How to Fill:
- Include the country code and TIN where taxes have been paid.
- Report the foreign tax paid and the relief available under India’s tax laws, citing the relevant sections (90, 90A, or 91) for claiming relief.
- Schedule FA – Details of Foreign Assets and Income
- Purpose: This schedule discloses all foreign assets held by the taxpayer during the calendar year (ending 31st December).
- How to Fill:
- Report all foreign assets in tables A1 to G, detailing accounts, equity, property, trusts, and other income sources.
- Convert foreign amounts into Indian Rupees based on the telegraphic transfer buying rate for the relevant dates (such as peak balance or year-end).
- Specify the nature of income from foreign assets, and ensure that any income chargeable to tax in India is duly reported.
Table Breakdown:
- A1 to A4: Disclose foreign depository accounts, custodial accounts, equity/debt investments, and insurance or annuity contracts.
- B: Report financial interests in foreign entities such as corporations or partnerships.
- C: Report any immovable property held abroad.
- D: Report other capital assets.
- E: Accounts where the taxpayer is a signing authority (not covered in A1-D).
- F: Trusts created outside India in which the taxpayer has a role.
- G: Other foreign income not covered by A1-F.
Conclusion
By filling out these schedules accurately, you ensure full disclosure of all foreign income and assets, minimizing the risk of penalties and maintaining compliance with Indian tax laws. Understanding the requirements of CRS, FATCA, and Indian tax law is crucial for staying on the right side of the law while contributing to national development.
Also Read: 10 Key Income Tax Changes in 2024 You Must Know for Filing Your ITR in 2025
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