The July 31 deadline for individual income tax return filing is knocking on our doors. As the deadline approaches, individuals rush to get the last pieces of the puzzle in place.
Governments the world over are trying to build more transparent taxation systems and curb corruption. Indian revenue authorities are also creating mechanisms to track income from different sources, including those outside India. The Income Tax Act, 1961, already provides that an individual who qualifies as Resident and Ordinarily Resident (ROR) in India would be taxable on his worldwide income. The authorities have modified the manner and detail in which such income has to be reported in the income tax return (ITR) forms used for filing returns. A new schedule called FSI has been introduced in the relevant ITR forms, where an individual is required to report income earned abroad separately.
Further, an individual is also required to show the break-up of such income from abroad under the heads of 'income from salary', 'income from house property', 'capital gains income', 'business income' and 'other sources income'. This income also needs to be bifurcated into the foreign income to which provisions of a tax treaty apply. A Tax Identification Number (TIN) where the tax has been paid in a foreign country should also be provided. The passport number of the payer is to be mentioned if a TIN has not been allotted in that foreign country.
Further, an individual who qualifies as ROR and has foreign assets is required to furnish the latter in the relevant ITR form; he cannot file in ITR-1. Foreign assets include foreign bank accounts, immovable property, financial interest in any entity and other assets held for investment purposes. The foreign bank account number and peak balance also need to be mentioned. Details of any foreign trusts of which an individual is a trustee are also to be reported. Additionally, an individual (qualifying as a resident) who holds assets abroad is also required to file his I-T return even if he does not have any income in India.
Such disclosure requirements are in line with the government's aim of unearthing unaccounted assets/wealth held by Indian residents abroad and to contain corruption. In many countries, such as the US and Japan, reporting of foreign assets has been mandatory for many years. In sum, an individual needs to diligently file his return to comply with the changed reporting requirements for income earned and assets held abroad.