Understanding Schedule FA in ITR Forms and Its Implications under Black Money Laws

1. Introduction

Schedule FA, which deals with the disclosure of foreign assets, has been an essential part of Income Tax Return (ITR) forms since Assessment Year (AY) 2012-13. Introduced through the revised ITR forms for AY 2012-13 (relevant for FY 2011-12), Schedule FA requires taxpayers to report details of their overseas investments, including stocks, mutual funds, and other financial instruments. This disclosure allows the Income Tax Department to assess risk parameters associated with the assessee and ensure compliance with international asset reporting norms.

2. Applicability of Disclosure Requirement

The requirement to report foreign assets under Schedule FA applies to all resident individuals and Hindu Undivided Families (HUFs) who are “Resident & Ordinarily Resident” (R&OR).

Key provisions under Section 139(1):

• Fourth proviso: A resident (other than a not ordinarily resident) must file an ITR regardless of total income if they:
  
  1. Hold any assets outside India (including financial interest in any entity) as a beneficial owner, otherwise, or as a signing authority in any overseas account.
  2. Are a beneficiary of any asset (including financial interest in any entity) located abroad.

Definitions:

• Beneficial Owner: An individual who directly or indirectly provides consideration for an asset for immediate or future benefit for themselves or any other person.
• Beneficiary: An individual who enjoys the benefits of an asset during the previous year, where consideration has been provided by another person.
• Fifth proviso: Individuals who are beneficiaries of foreign assets are exempt from mandatory ITR filing if the income from those assets is taxable in the hands of the beneficial or legal owner.

Foreign citizens classified as R&OR must also disclose foreign assets in Schedule FA. However, certain relaxations apply if all of the following are met:

1. The person is a foreign citizen.
2. They are in India on a business, employment, or student visa.
3. The foreign assets were acquired while they were a non-resident (NR) of India.
4. No income is derived from these foreign assets during the relevant previous year.

3. Reporting under Schedule FA

Schedule FA currently comprises 10 tables, each requiring detailed information regarding various foreign assets and related income. The tables are structured as follows:

Sr. No	Table No	Particulars
1	A1	Details of foreign Depository Accounts held, including any beneficial interest.
2	A2	Details of foreign Custodial Accounts held, including any beneficial interest.
3	A3	Details of foreign Equity and Debt interests in any entity, including any beneficial interest.
4	A4	Details of foreign Cash Value Insurance Contracts or Annuity Contracts, including any beneficial interest.
5	B	Details of financial interest in any entity, including any beneficial interest.
6	C	Details of immovable property held, including any beneficial interest.
7	D	Details of any other capital asset, including any beneficial interest.
8	E	Details of accounts in which you are a signing authority, including any beneficial interest.
9	F	Details of trusts created under foreign law, where you are trustee, beneficiary, or settlor.
10	G	Details of other income from foreign sources not reported in Tables A–F.

Example – Table A1: Foreign Depository Account
This table requires reporting of foreign depository accounts held at any time during the calendar year, e.g., ending 31st December 2022.

Sr. No	Country Name	Country Code	Financial Institution	FI Address	ZIP	A/c No.	Status	Opening Date	Peak Balance	Closing Balance	Gross Interest
1	USA	1	J P Morgan Chase Bank	XXXX, USA	99999	UXXX391-USD	Owner	29-10-2021	3,19,18,576/-	1,96,294/-	22,799/-

Definition (Rule 114F):
A depository account includes any commercial, checking, savings, time, or thrift account, as well as accounts evidenced by certificates of deposit, investment certificates, or similar instruments maintained by financial institutions. It also covers amounts held by insurance companies under guaranteed investment contracts or similar agreements.

Example – Table A2: Foreign Custodial Account
This table requires reporting of foreign custodial accounts held at any time during the calendar year ending 31st December 2022.

Sr. No	Country Name	Country Code	Financial Institution	FI Address	ZIP	A/c No.	Status	Opening Date	Peak Balance	Closing Balance	Gross Interest
1	USA	1	Interactive Broker	XXX, USA	99999	XXX-4444	Beneficial Owner	15-05-2022	8,72,468/-	8,59,805/-	511/-

Definitions (Rule 114F):

• Custodial Account: An account (other than insurance or annuity contracts) holding one or more financial assets for another person’s benefit.
• Custodial Institution: An entity whose substantial business is holding financial assets for others, with income from these activities forming at least 20% of its gross income during the prior three financial years (or since inception, if shorter).

Extract of Table A3 – Foreign Equity and Debt Interests
This table captures details of foreign equity or debt investments held at any point during the calendar year ending 31st December 2022.

Sr. No

Country Name

Country Code

Name of Entity

Address of Entity

ZIP Code

Nature of Entity

Date of Acquisition

Initial Value

Peak Value

Closing Value

Gross Interest

Gross Proceeds from Sale/Redemption

1

Singapore

65

XXX Pte Ltd

XXX, Singapore

99999

Private Limited Company

12-12-2014

2,90,488/-

3,76,108/-

3,01,773/-

0

0

Extract of Table A4 – Foreign Cash Value Insurance or Annuity Contracts
This table covers foreign insurance contracts or annuity contracts held during the calendar year ending 31st December 2022.

Sr. No	Country Name	Country Code	Financial Institution	FI Address	ZIP Code	Date of Contract	Cash/Surrender Value	Gross Interest
1	United Kingdom	XX	AVIVA, UK	XXX, UK	99999	19-08-2020	2,81,70,009/-	1,81,725/-

Definitions (Rule 114F):

• Insurance Contract: Any contract (except an annuity contract) under which the issuer pays upon a contingency involving mortality, morbidity, accident, liability, or property risk.
• Annuity Contract: A contract where the issuer makes payments for a period determined in whole or in part by reference to the life expectancy of one or more individuals.
• Cash Value Insurance Contract: An insurance contract (excluding reinsurance contracts) with a cash value, which for U.S. reportable accounts exceeds USD 50,000.
• Cash Value: The higher of:
  
  1. The amount receivable on surrender/termination of the contract (without any reduction for surrender charges or loans), or
  2. The amount the policyholder can borrow under the contract.

Extract of Table B – Foreign Financial Interest in Any Entity
This table requires reporting of any financial interest held in a foreign entity during the calendar year ending 31st December 2022.

Sr. No	Country Name & Code	ZIP Code	Nature of Entity	Name & Address of Entity	Nature of Interest	Date Since Held	Total Investment (Cost)	Income Accrued	Nature of Income	Taxable Income	Schedule & Item Number
1	USA (1)	99999	Private Limited Company	ABC Inc., XXX, USA	Beneficial Owner	16-08-2014	10,82,956/-	NIL	NIL	0	NA

Scope of Financial Interest:
Financial interest includes, but is not limited to, situations where the resident assessee:

• Holds the legal title or is the record owner of any foreign financial account.
• Is represented by an agent, nominee, or attorney in the entity.
• Owns shares or voting power in a foreign corporation.
• Holds interest in a foreign partnership (profit or capital).
• Has beneficial or ownership interest in a foreign trust.
• Owns voting power, equity, assets, or profit interest in any other foreign entity.

Extract of Table C – Foreign Immovable Property
This table collects details of foreign immovable property held during the calendar year ending 31st December 2022, including any beneficial interest.

Extract of Table C – Foreign Immovable Property
This table captures details of foreign immovable property held at any time during the calendar year ending 31st December 2022.

Sr. No	Country Name & Code	ZIP Code	Address of Property	Ownership (Direct/Beneficial/Beneficiary)	Date Since Acquisition	Total Investment (INR)	Income Derived	Nature of Income	Taxable Income	Schedule & Item Number
1	United Kingdom (44)	99999	XXX, UK	Direct	30-06-2018	1,75,00,000/-	8,00,000/-	Rent	8,00,000/-	House Property

---

Extract of Table D – Other Capital Assets
This table records any other foreign capital assets held, including beneficial interest.

Sr. No	Country Name & Code	ZIP Code	Nature of Asset	Ownership	Date Since Acquisition	Total Investment (INR)	Income Derived	Nature of Income	Taxable Income	Schedule & Item Number
1	USA (1)	99999	XX Growth ETF	Direct	29-09-2016	22,35,729/-	7,448/-	Dividend	7,448/-	Other Sources

Extract of Table E – Accounts with Signing Authority
Details of accounts where the assessee holds signing authority, not reported in Tables A–D.

Sr. No	Institution Name	Address	Country & Code	ZIP Code	Account Holder	Account Number	Peak Balance (INR)	Income Taxable?	Income Accrued	Income Offered	Schedule & Item Number
1	DBS Bank	XXX, Temasek, Singapore	(65)	99999	DE PTE Ltd	XXX-42XX85-4922	10,82,956/-	No	0	0	NA

Extract of Table F – Foreign Trusts
Captures foreign trusts where the assessee is a trustee, beneficiary, or settlor.

Sr. No	Country & Code	ZIP Code	Name & Address of Trust	Trustees	Settlor	Beneficiaries	Date Since Position Held	Income Taxable?	Income Derived	Income Offered	Schedule & Item Number
1	USA (44)	99999	XXX Trust, New Jersey, USA	Mr. XXX, USA	Mrs. XXX, USA	Mr. XXX, India	29-10-2020	No	0	0	NA

Extract of Table G – Other Foreign Income
Includes foreign income not reported in Tables A–F or under business/professional heads.

Sr. No	Country & Code	ZIP Code	Name & Address of Payer	Income Derived	Nature of Income	Taxable in Hands?	Income Offered	Schedule & Item Number
1	United Kingdom (44)	99999	XXX Ltd, UK	15,404/-	Directors Fees	Yes	15,404/-	Other Sources

General Instructions

• Data in Schedule FA must be reported for a specific calendar year.
• All foreign currency amounts must be converted to INR using the Telegraphic Transfer Buying Rate (TTBR) of SBI as of:
  
  • Peak balance date, or
  • Investment date, or
  • Closing date of the accounting period, as applicable.

4. Key Issues in Schedule FA Reporting

4.1 Calendar Year vs Financial Year (CY vs FY)

• Income in ITR is reported based on the financial year, whereas Schedule FA requires reporting based on the calendar year.
• Example: Director’s fees reported in FY 2022-23 may differ from the Calendar Year data in Table G, causing apparent mismatches.

4.2 Indirect Shareholding

• Question arises whether Schedule FA reporting is limited to direct shareholding (e.g., XYZ Pvt Ltd in PQR Inc.) or also includes indirect layers.
• If indirect reporting is required, the number of layers to be disclosed needs clarity.

4.3 Employee Stock Options (ESOPs)

• Example: ESOPs granted by an overseas parent company:
  
  • Grant Date: 01-01-2021
  • Vesting Date: 01-01-2023
  • Exercise Date: 01-01-2024
• Issues: Whether unvested or vested-but-unexercised ESOPs must be reported in Schedule FA.

4.4 Inadvertent Mistakes

• Example: Reporting JP Morgan Chase Broker account as Owner instead of Beneficial Owner in Table A2.
• Issues:
  
  1. Whether such errors constitute inaccurate reporting of foreign assets, potentially attracting penalties under Section 43 of Black Money Act (BMA).
  2. Whether filing a corrected return under Section 139(8A) of ITA remedies the defect.

4.5 Key Issues – Mismatch in Table Reporting

• Scenario: Mr. India invested in multiple listed shares on Nasdaq, Luxembourg, etc.
• He understood that such holdings should be reported in Table A3 – Foreign Equity and Debt Interest of Schedule FA, which requires peak balance reporting.
• Due to difficulty in retrieving peak balances for some shares, Mr. India instead reported these under Table D – Other Capital Assets, which does not require peak balance disclosure.

Issue:

• Does this constitute inaccurate reporting of foreign assets, potentially attracting a penalty under Section 43 of the Black Money Act (BMA)?
  

4.6 Other Points for Deliberation

• Must foreign assets also be disclosed in Schedule AL or in unlisted securities details in ITR apart from Schedule FA?
• Are minors required to disclose foreign assets in Schedule FA?
• For peak balance calculations, should market value or cost be considered?
• Is indirect investment in a foreign company through an Indian entity required to be disclosed?
• For brokerage accounts, should the underlying securities/shares balance be included when calculating peak balance?

5. Penalty & Imprisonment

5.1 Penalty

• Section 42: If a resident (R&OR) fails to report foreign assets, beneficial interests, or foreign income in the ITR under Section 139(1), the AO may impose a penalty of ₹10 Lakh.
• Section 43: If a resident (R&OR) provides inaccurate or incomplete information about foreign assets or income, the AO may also levy a penalty of ₹10 Lakh.
• Note: Sections 42 and 43 do not apply if the aggregate value of foreign bank accounts is less than ₹5,00,000 during the previous year.

5.2 Imprisonment

• Section 49: Willful failure to furnish return relating to foreign assets/income by a resident (other than RNOR) may lead to imprisonment from 6 months up to 7 years, along with a fine.
• Section 50: Willful failure to disclose information about foreign assets/income in the return may also attract imprisonment from 6 months up to 7 years, along with a fine.

Summary Table – Penalty & Imprisonment

Section	Description	Penalty / Imprisonment
42	Failure to provide return for foreign income/assets	₹10 Lakh
43	Inaccurate/Incomplete reporting of foreign assets	₹10 Lakh
49	Willful failure to furnish return relating to foreign assets/income	Imprisonment ≥6 months ≤7 years + fine
50	Willful failure to disclose asset information	Imprisonment ≥6 months ≤7 years + fine

Note: No penalty for non-disclosure of signing authority in Table E of Schedule FA.

6. Jurisprudence

6.1 Leena Gandhi Tiwari v/s Addl. CIT, ITAT Mumbai Bench [BMA No. 1/MUM/2022]

• Facts: AO found the assessee was a signatory to a foreign bank account not disclosed in ITR. Penalty under Section 43 was imposed.
• Held: Penalty deleted by CIT(A). Return filed under Section 153A substituted the original return under 139(1). Non-disclosure in the original return was bona fide and inadvertent, as funds were part of a legacy and later donated to charity. Aggregate value < ₹5 Lakh.

6.2 Tejal Ashish Mehta v/s Addl. CIT, ITAT Mumbai [BMA No. 5/MUM/2022]

• Facts: Indian resident failed to disclose a surrendered foreign life insurance policy in Schedule FA. AO imposed penalty under Section 43.
• Held: CIT(A) deleted penalty citing bona fide belief, surrender of policy, and full disclosure of receipts in ITR. Non-disclosure was deemed reasonable cause.

6.3 Ocean Diving Centre Ltd. & Naik Business Services Pvt. Ltd. v/s CIT, ITAT Mumbai Bench [BMA No. 22/MUM/2023]

• Facts: Domestic companies invested in foreign entities; disclosed in audited financials and Schedule A-BS of ITR, but not in Schedule FA. AO imposed penalty under Section 43.
• Held: Penalty not justified as disclosure was made in balance sheet and Schedule A-BS. AO’s discretion under Section 43 should be exercised judicially and reasonably.

6.4 Krishna Das Agarwal v/s DDIT/ADIT (Inv.), ITAT Jaipur Bench [BMA Nos. 01–05/JP/2022]

• Facts: Assessee invested via UAE company APFZE; made all necessary disclosures in revised returns. AO conducted search and added Rs. 146 Cr.
• Held: APFZE is a separate legal entity; investments belong to the company, not the assessee. Non-disclosure by assessee is not taxable. Assessee does not qualify as “beneficial owner” for APFZE funds. Penalty/assessment on assessee deleted.

6.5 Shobha Harish Thawani v/s JCIT, ITAT Mumbai Bench [BMA Nos. 01–03/Mum/2023]

Facts:

• Assessee jointly invested with her husband in Global Dynamic Opportunity Fund Ltd, holding a 40% share.
• Declared interest income from the investment in AY 2016-17 and capital gains on sale in AY 2019-20.
• Did not disclose the foreign asset in Schedule FA for AY 2016-17 to AY 2018-19.
• AO levied penalty under Section 43 of BMA; CIT(A) upheld it.

Issue:

• Whether the penalty under Section 43 of BMA should apply.

Held:

• Section 43 requires disclosure for any asset held as beneficial owner or otherwise, not only undisclosed assets.
• Assessee’s claim of bona fide inadvertent error was unsupported by evidence.
• AO exercised judicious discretion; no proof that penalty was arbitrary.
• Even if the asset is disclosed in books, penalty applies if not disclosed in Schedule FA.
• CIT(A) rightly confirmed the penalty under Section 43 for non-disclosure of foreign assets.

6.6 Nirmal Bhanwarlal Jain v/s CIT(A)-51 & DDIT/ADIT (Inv), ITAT Mumbai Bench [BMA Nos. 13–15/Mum/2023]

Facts:

• Assessee invested in Global Dynamic Opportunities Fund Ltd. (Mauritius) in his own name and in the names of his children (including minors).
• Disclosed investments in his own name in Schedule FA, but understated the amount (₹3,91,04,805/- instead of ₹5,50,44,320/-).
• Failed to report investments held in children’s names; no separate returns filed.
• CIT(A) levied penalty under Section 43 of BMA.

Issue:

• Whether Section 43 penalty is applicable.

Held:

• Section 43 penalizes failure to furnish complete and accurate details of foreign investments in the return.
• Assessee provided inaccurate particulars for his own investments and failed to report minors’ investments.
• Section 43 provides no gateway to escape penalty, even if investments were from known sources.
• Appeal dismissed; penalty upheld.

These two cases underscore:

• Section 43 strictly enforces disclosure in Schedule FA.
• Bona fide or inadvertent mistakes must be substantiated to avoid penalties.
• Investments held by minors or joint accounts also fall under disclosure requirements.

Disclaimer: The content on this website is for informational purposes only and does not constitute legal, financial, or professional advice. Please consult qualified experts before acting on any information. K M GATECHA & CO LLP accepts no liability for errors, omissions, or outcomes from the use of this content. This site is not an advertisement or solicitation.