All about disclosures on foreign assets and stock awards in tax return | Social Hindustan News

All about disclosures on foreign assets and stock awards in tax return | Social Hindustan News

Though the scope of taxation has not increased substantially, mandatory disclosures by individual taxpayers in terms of number of days of stay in India, directorship held during the relevant financial year (FY), assets and liabilities, etc., have increased manifold in the last few years. Disclosures particularly related to foreign income and assets have become exhaustive.

In this article we have outlined the disclosure requirements in the tax return on foreign assets and stock awards.

Overseas assets and financial interest

Individuals qualifying as ordinary residents of India for the purpose of taxation are obliged not only to offer all their incomes, including those earned outside India, to tax in India but to also disclose details of assets held outside India in the income tax return Form (Schedule TR-FA). Both immovable and movable assets are covered under this schedule.

The categories of assets that need to be listed in this schedule are bank accounts, securities accounts (demat / share-trading), shares or securities, insurance contracts, immovable property, Trusts in which the individual is a trustee or beneficiary and any other asset outside India held at any time during the calendar year 2021. It is important to note that bank accounts where the individual has the authority to sign (for instance minor children’s accounts) are also required to be reported.

The details to be provided in respect of foreign assets are quite comprehensive. For instance, where a bank account is held outside India, an individual is required to report its account number, name of the bank, branch address, date of account opening, highest balance maintained in the account during the FY, income earned and closing balance. Similarly, for an immovable property, details such as cost, address, country zip code, date of acquisition, ownership (whether direct or beneficial) and income earned from such a property are required to be reported in the schedule.

Given that the financial years of other countries do not exactly align with that of India, the details of the foreign assets (both movable and immovable) need to be provided for the calendar year of a particular financial year. For instance, for FY 2021-22, calendar year 2021 was considered. The individual is required to provide cost (of investment in property, investment in shares) rather than market value. Further, the amounts in foreign currency need to be converted into INR using the telegraphic transfer buying rate of the State Bank of India.

Any asset acquired during the period 1 January 2022 to 31 March 2022 need not be disclosed in the schedule of foreign assets in the tax return for FY 2021-22. However, any income earned from this asset during the same period would still be taxable in India and needs to be mentioned in appropriate schedule (such as income from house property or income from other sources) in the tax return Form.

Virtual Digital Assets (VDAs)

The Union Budget 2022 had announced taxation of VDAs. When it comes to the tax return, VDAs would need to be disclosed under “Any other Capital Asset held (including any beneficial interest) at any time during the calendar year ending as on 31 December 2021″.

As the taxation of VDAs is effective 1 April 2022, we could expect more disclosure requirements in the tax return which will be notified for FY 2022-23.

Stock awards

Shares allotted to individuals as part of ESOP by the employer are included in the salary income as perquisites. Any shares acquired through this mode need to be disclosed in foreign assets (FA) schedule if the shares are held outside India. This reporting is mandatory, irrespective of the quantum of the individual’s taxable income.

If the shares are held in Indian companies and if the individual’s income exceeds 50 lakh for FY 2021-22, disclosure is required in Schedule of Assets and Liabilities (Schedule AL) with the cost of shares held as on 31 March 2022 (end of FY 2021-22).

The tax return Form of FY 2021-22 includes the ESOPs Schedule which is a distinct feature, applicable for ESOPs issued by eligible start-up companies. This schedule requires an individual to report the entire movement of shares in his portfolio and the applicable taxes. ESOPs schedule would help individuals keep track of their unutilised options and deferred tax.

While the above requirements might sound onerous, one has to appreciate the fact that these days tax returns are prefilled with several data points, such as salary income, bank interest, taxes paid etc. Further, these data requirements in the tax return have facilitated quick processing of tax returns. Refunds are issued much quicker these days than earlier when the Forms were simple.

Sudhakar Sethuraman is partner with Deloitte Haskins and sells LLP, and Vijayalakshmi Kartik is manager with Deloitte Haskins and sells LLP

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