Reporting of foreign assets in the income tax return: CBDT issues a clarification

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CBDT has clarified that only foreign assets acquired as per the relevant accounting period of the foreign country have to be reported while filing ITR for FY 2018-19.

The finance ministry has issued a clarification on how to fill income tax returns for FY2018-19 for resident Indians holding foreign assets. Such individuals were facing problems in reporting foreign assets in the ITR wherever the financial year in India differed from that of the country in which the asset is held. The Central Board of Direct Taxes (CBDT) has issued a clarification dated August 27 regarding the above. In the circular, the CBDT has clarified that only foreign assets acquired as per the relevant accounting period of the foreign country have to be reported while filing income tax returns (ITRs) for the financial year 2018-19.

While filing your ITR, you have to report any foreign assets held if during the financial year you have (a) held as beneficial owner, beneficiary or otherwise, any asset (including financial interest in any entity) located outside India, or (b) signing authority in any account located outside India, or (c) received income from any source outside India. Individuals’ holding such foreign assets are required to report these holdings in their tax return using ITR-2 or ITR-3, whichever is applicable. Individuals are required to provide exhaustive details of the foreign assets held by them in the Schedule FA of the ITR form. Reporting of such foreign assets is to be done on the basis of the foreign assets acquired during the relevant accounting period of the foreign country.

Chartered accountants had pointed out that resident individuals with foreign assets were facing problems in reporting the same in the ITR to be filed for FY2018-19. The problem specifically related to foreign assets acquired during the months of January, February and March 2019. Many foreign countries, including France, Denmark, UAE, and Saudi Arabia, follow the calendar year as the financial year, i.e., January 1 to December 31. In India, however, the financial year is from April 1 to March 31.

Whiling filling information in the ITR form regarding the foreign assets acquired during the last three months of the FY 2018-19, the taxpayer would have to answer as ‘Yes’. However, the exhaustive details required to be filled in the Schedule FA of the ITR form would be ‘Nil’ as they were acquired after the relevant accounting period of the foreign country. This was creating problems while validating ITR forms, which is important while generating the XML file to be uploaded on the e-filing website to file the tax return.

The CBDT clarification states, “It is hereby clarified that a taxpayer shall be required to answer the relevant question (whether foreign assets are held or not) in the affirmative, only if he has held the foreign assets etc. at any time during the “previous year”(in India) as also at any time during the “relevant accounting period”(in the foreign tax jurisdiction), and fill up Schedule FA accordingly.”

This can be explained via an example. A foreign asset acquired and held by an individual in May 2018 will require to be reported while filing ITR for FY 2018-19. However, if the foreign asset was acquired by an individual in January 2019, then the same will not be required to be reported at the time of filing ITR for FY 2018-19.

The income tax department has defined the relevant accounting period as:
(a) From 1 January 2018 to 31 December 2018 in respect of foreign assets or accounts, etc. held in those jurisdictions where calendar year is adopted as the basis for the purpose of closing of accounts and tax filings;
(b) From 1 April 2018 to 31 March 2019 in respect of foreign assets or accounts, etc. held in those jurisdictions where financial year is adopted as the basis for the purpose of closing of accounts and tax filings;

(c)That period of 12 months, which ends on any day succeeding 1 April 2018, in respect of foreign assets or accounts held in those jurisdictions where any other period of 12 months is adopted as the basis for the purpose of closing of accounts and tax filings.

The relevant accounting period was clarified in the instructions issued along with the ITR forms.
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Courtesy: Economic Times