How the Income Tax Dept tracks your foreign income and assets: CRS, FATCA, and what you must report

You can't hide your global income, including foreign assets and investments, from the Income Tax Department. Ever wondered why?

This is because the department can access your financial accounts held in foreign jurisdictions with the help of the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA).

CRS and FATCA are international frameworks designed to combat tax evasion by increasing transparency and cooperation among tax authorities worldwide.

CRS is an initiative of the Organisation for Economic Co-operation and Development (OECD). It mandates financial institutions to report information about financial accounts held by foreign residents to their respective tax jurisdictions. This information is exchanged with other jurisdictions annually.

FATCA is a law developed by the United States. It mandates foreign financial institutions to report accounts held by the US taxpayers to the Internal Revenue Service (IRS), the tax authority for American taxpayers.

What information does India get under CRS, FATCA?

India receives detailed information about financial accounts held by its residents in foreign jurisdictions under CRS and FATCA. Some of these details are following:

• Account holder's name, address, and tax identification number (TIN)
• Account number and balance
• Income details such as interest, dividends, and other financial proceeds.

With the help of the above information, the Income Tax Department finds out the global income of its resident taxpayers. CRS and FATCA also help the department in identifying taxpayers who may not have disclosed their foreign assets and income.

What incomes are you required to disclose?

Under Income Tax Act, 1961, resident Indians are required to disclose their foreign assets and income in their income tax returns (ITR).

• Schedule FA (Foreign Assets) in the ITR form is meant for reporting foreign assets.

• Schedule FSI (Foreign Source Income) is for reporting income from foreign sources.

• Schedule TR (Tax Relief): You can claim tax relief on taxes paid abroad by filing Schedule TR along with Form 67 online.

What happens if you fail to disclose foreign assets?

According to the Income Tax Department, failure to disclose foreign assets and income can attract stringent penalties and prosecutions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

How to report foreign assets and income in ITR

You can report foreign assets and income in ITR by filling Schedule FA/Schedule FSI. While doing so, you need to:

• Ensure complete and accurate disclosure of all foreign assets and income
• Avoid penalties and legal consequences for non-disclosure
• Avail any eligible tax reliefs under the provisions of Indian tax laws and DTAA.