Why taxpayers need to take stock of their foreign assets now

It is mandatory for taxpayers who hold foreign assets or who derive income from these assets to file an income tax return (ITR).

Foreign assets include foreign real estate, bank accounts (both custodians and custodians), debt or equity securities, other fixed assets, cash value insurance contracts, annuity contracts and accounts or financial interests in any entity of which the taxpayer is the beneficiary, authorized signatory or settler.

Foreign assets are reported in the Foreign Property or FA Schedule of IRR-2 or IRR-3, depending on the taxpayer.

Until now, these assets had to be reported for the relevant “accounting period”, as defined by the foreign country, in which they were acquired.

For the 2022-23 tax year, the accounting period has been changed to the calendar year (ending December 31, 2021) for jurisdictions that follow the calendar year, such as the United States. This means that all foreign assets held between January 1, 2021 and December 31, 2021 must be reported in that year’s ITR. So, let’s say you bought shares of company X, which is located outside India, in February 2022. You don’t need to report them in the ITR of the current valuation year although it was purchased during the previous fiscal year. Information regarding X’s shares will be required to be disclosed in tax year 2023-24.

Note that even though the disclosure is in accordance with the calendar year, the calculation of tax should be made on the basis of the financial year in India. For example, if you bought and sold an asset in January 2022 and realized capital gains on it, you have to pay taxes on it in the 2021-22 fiscal year. However, you will have to declare it in AY2023-24 and not AY2022-23.

The taxation of retirement account (RBA) income has long been a pain point for taxpayers. In India, deposit income is taxed even if it is not withdrawn, while countries where the RBA is held generally tax withdrawals. This led to double taxation.

“It also causes difficulties for non-residents returning permanently to India, as they find it difficult to qualify for Foreign Tax Credit (FTC) for tax paid outside India on such income. to remove these difficulties, Section 89A has been introduced,” said Yeeshu Sehgal, Head of Tax Markets, AKM Global, a tax and advisory firm.

Currently, three countries, the United States, the United Kingdom and Canada have been notified to this effect. “There are two different boxes in the ITR form to disclose RBA revenue for the notified country and a non-notified country,” Sehgal said.

Taxpayers who wish to have their income accrued in the 2021-22 fiscal year by the RBA taxed in the year of withdrawal should complete Form 10EE before filing their ITR. Once chosen, this option cannot be reversed.

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