Foreign Income and Overseas Assets: What Taxpayers Need to Disclose

In today’s economy Indians are investing more money outside India, whether it is in the form of shares and securities, immovable properties, crypto currencies, or through Employee Stock Options (ESOPs) or Restricted Stock Units (RSUs). The moment a person begins to hold a foreign asset or earns income from any source outside India, a separate compliance begins to run parallel to the regular income-tax filing.

This is governed by the Income-Tax Act, 2025 read with the Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax) Act, 2015, along with the Foreign Exchange Management Act, 1999 (FEMA) that regulates the flow of money or holding of foreign property by persons resident in India.

Regulations governing Overseas Investment by an Indian Resident

Following are the statutory regulations governing the holding of foreign properties, investments or earning income from foreign sources:

1. Foreign Exchange Management Act, 1999.
2. Income-tax Act, 2025.
3. Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax) Act, 2015.

Under FEMA, the Reserve Bank of India (RBI) has permitted resident individuals to remit funds up to USD 2,50,000 in a financial year under a scheme namely Liberalised Remittance Scheme (LRS). The said scheme allows a resident to remit up to USD 2,50,000 per financial year for permitted current and capital account transactions. This includes buying stocks and shares abroad or in foreign companies, opening a foreign bank account, buying immovable properties abroad, or gifting money to relatives residing overseas. Anything beyond this limit needs specific RBI approval.

Before a person undertakes transactions involving a non-resident, the person has to first satisfy the requirements of FEMA and related regulations before getting into the taxation of such investments or foreign incomes. Once the conditions laid under FEMA are satisfied, the Income-tax Act, 2025 determines the taxability of foreign transactions and their reporting by such persons while filing income-tax returns.

Under the Income-tax Act, 2025, Section 5 provides the scope of income chargeable to income tax depending upon the residential status of the person. Criteria for determining the residential status is provided under Section 6 of the Act. Section 6 of the Act specifies three categories of residential status as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR) and Non-resident.

In the case of ROR, global income is taxable in India irrespective of source of such income. For example, dividends from foreign shares, capital gains on sale of foreign shares, rental income or interest earned on a foreign bank fixed deposit.

In case of a Non-Resident or a Resident but Not Ordinarily Resident, incomes that are received or accrues in India are taxable, and foreign income is generally not taxable in India unless it is received or deemed to be received in India, or accrues or arises in India.

After determining the residential status and taxability of incomes, then comes the Black Money Act, 2015, which does not really tax anything new by itself but is the enforcement behind non-disclosure. It says any resident and ordinarily resident who has an undisclosed foreign asset or foreign income can be taxed at a flat rate, along with a penalty that can go up to three times the tax amount, and there is also a possibility of prosecution with rigorous imprisonment. There is no limitation period under this Act for undisclosed foreign assets, subject to the applicable legal provisions.

How the actual taxation works

Once residential status establishes that the income is taxable in India, the next question is under what head. Dividend from foreign shares is taxed as income from other sources at slab rate applicable to such person. Capital gains depend on the type of asset and the holding period.

Since foreign shares are not listed on an Indian exchange, they are generally treated like unlisted shares for this purpose. Accordingly, shares of foreign companies are treated as long-term when held for more than 24 months and taxed at 12.5 plus surcharge and cess without indexation. In case such shares are held for less than 24 months, such shares are treated as short-term capital assets and taxed at the applicable slab rate.

Rental income from foreign property is taxed as income from house property, and standard deduction of 30% along with home-loan interest deduction, if any, is still available in the same way as for an Indian property. Interest income is taxed as income from other sources.

To avoid double taxation of incomes, India has entered into tax treaties with approximately 94 countries. Tax treaties are known as Double Taxation Avoidance Agreements (DTAA). A person who has already suffered tax in the source country, DTAA permits claim of credit of such taxes subject to credit computation mechanism to prevent double taxation. Section 159 provides relief where there is a DTAA, and Section 160 provides relief where there is no DTAA.

The mechanism through which credit of tax paid in a foreign country is claimed is known as Foreign Tax Credit, or FTC, and this is governed by Rule 76 of the Income-tax Rules, 2026. The credit is allowed only up to the lower of the tax paid in the foreign country or the tax payable in India on the same income.

Forms that need to be filed

Anyone who is Resident and Ordinarily Resident and holds any foreign asset, whether it is a bank account, shares, ESOPs, property, or even a foreign insurance policy, has to disclose it under Schedule FA of the income-tax return. This applies regardless of the value of the asset and regardless of whether the return would otherwise have been required to be filed, meaning that even if income is below the taxable threshold, holding a foreign asset by itself creates a disclosure obligation.

If foreign tax credit is to be claimed, Form 44 has to be filed before the due date of filing the return. This is a statement giving details of the income earned outside India and the tax paid on it in the foreign country, along with proof such as the foreign tax return or a certificate from the deductor.

Form 145 and Form 146 are required to be filed at the time of remitting money out of India rather than at the point of filing the return. Form 145 is a self-declaration filed by the remitter, and Form 146 is a certificate from a Chartered Accountant confirming the nature of the remittance and whether taxes are required to be withheld on such remittance.

Overseas Assets Regulatory Framework

Asset category	Main compliance point
Crypto / Virtual Digital Assets held overseas	Gains are taxed at 30% plus 4% cess; holdings in a foreign wallet/account should be reported in Schedule VDA and Schedule FA.
Immovable property abroad	Can be acquired under LRS within the USD 2,50,000 annual limit; property must be reported in Schedule FA.
Shares and securities abroad	Foreign shares, including vested and unvested ESOPs, must be disclosed in Schedule FA.
Other foreign assets	Foreign bank accounts, insurance, pension funds and inherited assets may require Schedule FA disclosure.

Taxation of Overseas Income

Overseas salary is taxed as salary income in the hands of a Resident and Ordinarily Resident in India, since it forms part of global income. The taxpayer may, however, be eligible for standard deduction and other normal salary-related exemptions. Foreign Tax Credit may also be claimed for tax paid abroad, subject to the applicable conditions.

Consulting fees earned from foreign clients are taxed as business income in the hands of a resident of India and are included in total income for taxation purposes. Professionals may also benefit from presumptive taxation where the relevant conditions are met.

Dividends from foreign shares, ADRs and ETFs are fully taxable in the hands of the resident shareholder at slab rates. Foreign dividends are treated as ordinary income, and no deduction is allowed beyond what is permitted under the head income from other sources.

Sale of foreign listed or unlisted shares, such as US stocks, is taxable as capital gains, short-term or long-term depending on the holding period. Foreign shares such as US stocks are generally treated as unlisted securities for this purpose.

Other foreign income, such as foreign bank interest, pension receipts, insurance maturity proceeds and miscellaneous foreign income, is taxable as income from other sources in most cases, including interest on foreign deposits and pension from a foreign employer or fund, subject to treaty relief in some DTAAs. Gifts and inheritances are generally not taxed when received, but income earned later from them is taxable.

Penalty

Penalty for non-disclosure of foreign income in Schedule FA may attract a penalty of Rs 10,00,000 under the Black Money Act in addition to tax and interest, for each year of non-disclosure, subject to the conditions and exceptions under that Act. Separate penalties may also arise under the Income-tax Act, 2025 for failure to report foreign income, depending on the nature of the default. In serious cases, prosecution may also follow, including imprisonment, depending on the offence.

How India Law Offices can assist

India Law Offices can assist you in evaluating your overseas assets and determining whether any of them have been reported for tax purposes in India. We can also assist you in preparing or reviewing Schedule FA and Form 67, and in determining the amount of foreign tax that can be claimed as credit in India for foreign taxes paid. We can assist you in checking the scope of taxation on your overseas income and in determining the amount of tax that may be saved in respect of your foreign assets. We can also assist you in structuring remittances of funds, including under FEMA.