As we know, the income tax Returns in India require detailed reporting of income, tax relief, and foreign assets (if applicable), else due to information exchange agreements department is sending notices. In this article we will discuss how to file the Schedule FSI, Schedule TR, and Schedule FA in your ITR along with its meaning, ensuring compliance and accuracy.
First of all, let's discuss the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act, Purpose of CRS is related to the OECD's initiative for global tax transparency, requiring financial institutions to report foreign residents financial accounts for annual exchange between jurisdictions, on other hand FATCA is as per the U.S. law mandating foreign financial institutions to report U.S. taxpayers' accounts to the IRS. Both aim to combat tax evasion by increasing international cooperation.
India receives data under CRS and FATCA, including account holder details (name, address, TIN), account numbers, balances, and financial income (interest, dividends), which helps the income tax department to detect undeclared foreign income and assets, this is how you receive notice if you forget to disclose the same.
Before we start, let's discuss types of ownership, first is beneficial owner who is an individual providing consideration for the asset, that is held for their own benefit, where as beneficiary is Individual receiving benefits without providing any consideration. If the person is both legal and beneficial owner, then mention legal owner.
Our Income tax act, 1961 mandates reporting foreign income and assets in ITR using Schedule FSI used to reporting foreign source income, and Schedule TR for claiming tax relief for taxes paid abroad, and Schedule FA used to report foreign assets. We will discuss them in detail in this article.
Schedule FSI, a Schedule used for providing the details of Income from Outside India and Tax Relief
Applicability
Schedule FSI is mandatory for taxpayers who are residents of India as it captures the details of income accrued or arising from sources outside India, along with any tax relief claimed under double taxation avoidance agreements which was signed by India with 85 other countries, to resolve the problems relating to taxation. It helps NRIs working abroad to avoid paying double taxes i.e. on the income from both their home country as well as country where income arose.
How is Schedule FSI filed?
First one is Income Reporting where one should report income accruing from any foreign source, ensuring that this income is also reflected under the relevant head of income such as salary, business/profession income in the original ITR form, one must use the country code, based on the International Subscriber Dialling or ISD code of the respective country, to identify the source country.
Second is taxpayer identification number by provide the taxpayer identification number issued in the foreign country where the income is earned, but in case TIN is not available with the assessee then he should mention the passport number.
Now after identification of source country, foreign tax credit or FTC comes to picture, If taxes are paid outside India, report the amount along with that, the article of DTAA which is relevant under which tax relief is being claimed should also be mentioned, ensuring that Form 67 is submitted along with the ITR to claim foreign tax credit.
Key Columns
- Column (a): Country Code
- Column (b): TIN or Passport Number
- Column (c): Total foreign income reported
- Column (d): Tax paid outside India
- Column (e): Tax relief claimed in India
We should keep in mind for maintaining accuracy while converting the income into indian rupees using the telegraphic transfer buying rate on the relevant date.
Schedule TR, a schedule used for claiming Tax Relief for taxes paid abroad
Purpose
Schedule TR is used to consolidate the details of all the tax reliefs which are being claimed in India for the taxes that are paid abroad. In short, this schedule is used to summarize the information which is provided in Schedule FSI.
That's the reason I discussed schedule FSI first
How schedule TR is filed?
Details we need to provide are first country Code and TIN, we must use the ISD code for the country and provide the TIN or passport number, if applicable, passport number is given as an option, in case one don't have TIN number, second detail is regarding foreign tax paid which is the total amount reported in column (c) of Schedule FSI for the respective country, similarly tax relief claimed to be reported by specifying the total relief available, as reported under column (e) of Schedule FSI.
After this, a column of section reference is there where you are required to mention the applicable section under which relief is claimed:
- Section 90 (for countries with DTAA)
- Section 90A (for adopted DTAA agreements)
- Section 91 (for countries without DTAA)
What are the columns to be filed?
- Column (a): Country Code
- Column (b): TIN or Passport Number
- Column (c): Tax paid outside India
- Column (d): Tax relief available
- Column (e): Applicable Section
While filing the same, we should ensure consistency between Schedule FSI and Schedule TR, Form 67 is important to be filed to claim FTC, as the discrepancies may lead to rejection.
The last one is Schedule FA, a schedule that details Foreign Assets and Income from Foreign Sources
Applicability
This schedule is mandatory for residents of India (excluding those categorized as Not Ordinarily Resident(NOR) or Non-Resident(NR)). It is to be filed and captures details of all foreign assets, income, as well as accounts held during the calendar year ending 31st December of the previous financial year.
Filling Schedule FA
The schedule is divided into Tables A1 to G, that classify different types of foreign assets and income. Let's discuss all of them in detail.
Table A1: foreign depository accounts
In this table, we are required to report the peak balance and closing balance in these accounts during the calendar year, along with the gross interest paid or credited to these accounts to be disclosed. All these amounts shall be converted into Indian Rupees using the telegraphic transfer buying rate.
Table A2: foreign custodian accounts
In this table, the details of the peak and closing balances in custodian accounts are required to be reported, by mentioning the nature of gross amounts credited such as interest and dividends using the drop-down options.
Table A3: foreign equity and debt investments
In this table, we are required to report the initial value of the investment abroad, peak and closing values during the calendar year, the gross interest as well as the proceeds from sales or redemption of these investments
Table A4: foreign cash value insurance contracts or annuities
In this table, we must mention the cash or surrender value as on 31st December, with the disclosure of gross amounts credited to the contract
Table B: financial interest in foreign entities
In this table, we are required to provide the details along with the peak and closing investment values of financial interests like ownership of shares, voting power, profits in partnership, or any beneficiary interests in trusts. We must disclose the income accrued along with taxable amounts in India.
Table C: Immovable Properties outside India
In this table, we must mention our investment value at cost, nature and amount of income derived from the property like rental income and taxable amounts in India.
Table D: other capital assets
By this table we must disclose the value of the investment at cost, for assets not reported in other tables, income derived from these assets and taxable amounts in India, we must exclude business assets that are reported in the balance sheet.
Table E: other accounts with signing authority
In this table, we must report accounts not covered in Tables A1 to D, by providing the peak balances or investment value as well as the income accrued and taxable portions in India.
Table F: Trusts Created Outside India
In this table, you must mention the details of trusts where you are a trustee, settlor, or beneficiary, income accrued and taxable portions in India shall be disclosed.
Table G: other income from foreign sources
In this table, those income that is not reported in Tables A1 to F shall be reported, along with the amounts that are chargeable to tax in India.
We must note that even if foreign assets have been reported in prior years, they must be disclosed again in the Schedule FA for the current year, as we saw above reporting is done upto 31st December of current year, hence it has calendar year alignment which means for AY 2025-26, we must report foreign assets that are held between 1st January 2024 and 31st December 2024.
Conclusion
Filling Schedules FSI, TR, and FA in the ITR demands very careful reporting of foreign income, tax credits, as well as foreign assets. By adhering to the guidelines above and maintaining consistency, assessees will ensure compliance with our income tax laws and avoid any future penalties.
The author can also be reached at aman.rajput@mail.ca.in
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