Context:
In light of a significant rise in overseas investments under the Liberalised Remittance Scheme (LRS)—totaling $29.56 billion in FY25, with $2.5 billion outflow in April 2025 alone—resident Indian investors must ensure accurate income-tax return (ITR) filings to avoid stiff penalties, including under the Black Money (Undisclosed Foreign Income and Assets) Act.
I. Filing the Correct ITR Form
- ITR-2: For individuals with foreign assets/income but no income from business/profession.
- ITR-3: If you have income from business or profession alongside foreign income/assets.
II. Mandatory Foreign Disclosures for ROR Taxpayers
Schedules to be Filled:
| Schedule | Disclosure |
|---|---|
| FA (Foreign Assets) | All foreign securities/assets including low-value or dormant holdings |
| FSI (Foreign Source Income) | Income from dividends, interest, gains from foreign securities |
| TR (Tax Relief) | Claim of tax credit under DTAA provisions |
| CG (Capital Gains) | Gains/losses from foreign equity sales |
| OS (Other Sources) | Dividends, interest, miscellaneous foreign income |
| TCS (Tax Collected at Source) | TCS credit claim if LRS exceeds â‚ą10 lakh/year |
III. Taxation Rules for Foreign Securities
- STCG (<24 months holding): Taxed at the individual’s slab rate.
- LTCG (>24 months): Taxed at 12.5% (no indexation) + cess + surcharge (from July 23, 2024 onward).
- Dividends: Taxed at slab rate.
IV. Claiming Foreign Tax Credit (FTC)
- Report foreign income & taxes paid in ITR.
- File Form 67 electronically (due by Dec 31, 2025 for FY25).
- Maintain supporting foreign tax documents.
V. Setting Off Capital Losses
| Type of Loss | Set-off Allowed |
|---|---|
| Short-Term Loss | Against STCG & LTCG |
| Long-Term Loss | Only against LTCG |
- Carry forward period: 8 years (return must be filed by due date, i.e., Sept 15, 2025).
VI. Penalties for Misreporting
| Violation | Penalty |
|---|---|
| Non-disclosure of foreign assets/income | Up to â‚ą10 lakh |
| Misreporting of foreign income/assets | Up to 200% of the tax due |
| Prosecution | Possible under Black Money Act |
VII. Revised or Updated Returns
- Revised return: File by Dec 31, 2025, to correct errors.
- Updated return: Can be filed within 4 years from original filing, if it leads to increased income and tax liability.
VIII. Common Mistakes to Avoid
- Omitting foreign income/assets
- Not claiming FTC despite tax paid abroad
- Failing to reconcile TCS data
- Incorrect currency conversions
- Assuming DTAA benefits without documentation
IX. Documentation to Prepare for Scrutiny
- TCS certificates, LRS/ODI forms
- SWIFT messages & bank statements
- Source of funds proof
- RBI conversion records
- Foreign broker statements & trade reports
- Contract notes
- Justification for write-offs
- Foreign tax payment receipts
