Foreign Assets, RSUs and Foreign Bank Accounts in ITR: Schedule FA Reporting, Notices and Penalty Explained

1. Introduction

In recent years, many taxpayers have received notices and communications from the Income Tax Department for not reporting foreign assets, foreign bank accounts, RSUs, ESOPs, foreign brokerage accounts or foreign income in their Income Tax Returns. In many cases, the assets were acquired from disclosed sources, but due to non-reporting or incomplete reporting in Schedule FA, taxpayers faced avoidable notices, penalty exposure and litigation.

As the ITR filing period is approaching, it is important to understand the reporting requirement of foreign assets so that taxpayers do not repeat such mistakes. Foreign asset reporting is no longer a minor compliance requirement. The Income Tax Department may already have information about foreign accounts, investments, dividends and sale proceeds through international information exchange mechanisms.

This article is not limited to any particular assessment year. The principles discussed are relevant for past as well as upcoming years, subject to the applicable law and ITR form of the relevant year.

For AY 2026-27, the return relates to FY 2025-26 and the applicable provisions continue under the Income-tax Act, 1961. Under the Income-tax Act, 2025, the corresponding return-filing provision is section 263, which also continues the mandatory filing requirement for a resident other than not ordinarily resident having foreign assets, foreign financial interest, foreign signing authority or beneficiary interest.

In this article, we will discuss what foreign assets are required to be reported, when reporting is mandatory, which ITR form should be used, how RSUs/ESOPs and foreign bank accounts should be disclosed, and what consequences may arise if such reporting is missed.

For any doubt regarding foreign asset reporting, Schedule FA, RSU disclosure, foreign tax credit or ITR filing, you may contact us at the details mentioned at the end of this article.

2. Who is required to report foreign assets in Schedule FA?

Schedule FA is primarily applicable to a Resident and Ordinarily Resident (ROR) taxpayer having any foreign asset, foreign financial interest, foreign account, foreign signing authority or foreign source income.

The important point is that Schedule FA is linked with residential status and foreign asset/income exposure. A Non-Resident or Resident but Not Ordinarily Resident may have foreign assets outside India, but that alone does not trigger Schedule FA reporting. However, if such assessee has Indian taxable income, refund claim, loss carry-forward requirement, TDS credit or any other mandatory filing condition, ITR may still be required for those separate reasons.

3. Mandatory ITR filing even if income is below taxable limit

Under section 139(1), Income-tax Act, 1961, a person being resident other than not ordinarily resident is required to furnish return of income if, at any time during the previous year, he/she:

1. holds any asset outside India as beneficial owner or otherwise;

2. has any financial interest in any entity located outside India;

3. has signing authority in any account located outside India; or

4. is a beneficiary of any foreign asset, subject to the limited beneficiary exception.

This requirement applies even where the total income is below the basic exemption limit. Therefore, where an ROR assessee has foreign RSUs, foreign shares, foreign bank account, foreign brokerage account or foreign signing authority, ITR filing may become compulsory even if no tax is payable.

From the Income-tax Act, 2025 perspective, the corresponding provision is section 263(1)(a)(ix), read with section 263(1)(b), which similarly provides that a resident other than not ordinarily resident having foreign asset, foreign financial interest, foreign signing authority or beneficiary interest must furnish return regardless of income or loss.

4. Correct ITR form

Taxpayers having foreign assets or foreign income should not file ITR-1 or ITR-4 because these forms do not contain Schedule FA.

Filing ITR-1 or ITR-4 despite having foreign assets may result in incomplete reporting because Schedule FA is not available in these forms.

5. Reporting period for Schedule FA

For Schedule FA, the reporting period is generally based on the calendar year ending during the relevant previous year. For AY 2026-27, the relevant previous year is FY 2025-26, and the foreign assets reportable in Schedule FA are generally those held at any time during the calendar year ending 31 December 2025, as per the ITR utility/schedule structure.

This distinction is important. For example, if RSUs vest in February 2026, the perquisite may be taxable in FY 2025-26, but asset disclosure must be checked as per the applicable Schedule FA reporting period and ITR utility.

6. What foreign assets are covered?

Schedule FA is very broad. It is not restricted to black money or undisclosed assets. It covers even foreign assets acquired from disclosed income.

Therefore, RSUs, vested ESOP shares, foreign bank accounts, foreign brokerage accounts, foreign retirement accounts, overseas property, foreign trusts and foreign signing authority must be reviewed before filing ITR.

7. RSUs / ESOPs: Tax and Schedule FA reporting

RSUs are one of the most common reasons for Schedule FA mistakes. The issue is not limited to sale of shares. Once shares vest and the assessee becomes owner/beneficial owner of foreign shares, Schedule FA reporting may be required.

Where RSUs are held through a foreign broker or employer stock plan account, two disclosures may be required:

1. the foreign custodial/brokerage account; and

2. the underlying foreign equity shares/RSUs.

Therefore, merely reporting salary perquisite or capital gain is not sufficient if Schedule FA is omitted.

8. Foreign bank accounts: Dormant or small accounts also require review

A resident taxpayer should review all foreign bank accounts, including:

1. old salary accounts outside India;

2. student accounts opened during foreign education;

3. accounts opened while working abroad;

4. NRI accounts not properly evaluated after residential status changes;

5. overseas savings/checking accounts;

6. foreign accounts with small or nil balance;

7. PayPal/Stripe or similar foreign balances, where applicable.

Schedule FA generally requires details such as country, name and address of financial institution, account number, status, account opening date, peak balance/value, closing balance/value and gross amount paid or credited.

A small balance may help in penalty defence under the Black Money Act where the statutory exception applies, but small balance should not be treated as a general exemption from disclosure.

9. Schedule FA, Schedule FSI, Schedule TR and Form 67

Schedule FA is only for disclosure of foreign assets/accounts/income details. It does not by itself complete tax reporting.

Foreign income must also be reported under the correct head of income in the computation schedule. For example:

For foreign tax credit, Form 67 is relevant under Rule 128 of the Income-tax Rules, 1962, read with sections 90/91 of the Income-tax Act, 1961, subject to prescribed conditions and timelines.

10. Case-wise check: Whether ITR is required

11. Consequences under the Income-tax Act, 1961

Under the Income-tax Act, the consequences depend on whether the default is only late filing, non-filing, omission of income, or inaccurate income reporting.

Important distinction: mere omission of foreign asset in Schedule FA without any income under-reporting may not automatically attract penalty u/s 270A, because section 270A is linked with under-reporting or misreporting of income. However, such omission may independently attract consequences under the Black Money Act.

12. Consequences under the Black Money Act, 2015

The Black Money Act contains specific provisions for foreign income and foreign assets. The major provisions are:

Sections 42 and 43 apply to a person being resident other than not ordinarily resident and cover assets held as beneficial owner or otherwise, beneficiary interest and income from a source outside India.

The earlier limited exception mainly referred to small foreign bank account balances. However, after amendment by the Finance (No. 2) Act, 2024, the relief has been expanded. Broadly, sections 42 and 43 do not apply in respect of foreign asset/assets, other than immovable property, where the aggregate value does not exceed Rs 20 lakh. This relief should be examined carefully on facts and should not be treated as a general exemption from Schedule FA disclosure.

13. Penalty where ITR has been filed but Schedule FA is missed

This is the most practical issue. Many assessees file ITR but either omit Schedule FA or file the wrong ITR form.

Situation 1: No income, but foreign assets exist

Example: The assessee is Resident and Ordinarily Resident, has foreign RSU shares, foreign brokerage account or foreign bank account, but has no taxable income.

Therefore, where there is no income but foreign asset exists, the main risk is not section 270A of the Income-tax Act. The specific risk is under section 43 of the Black Money Act for non-disclosure or inaccurate disclosure of foreign asset particulars.

Situation 2: Income exists and foreign assets also exist

This situation must be divided into two parts.

Case A: Income disclosed but foreign asset not disclosed

Example: RSU perquisite, dividend or capital gain is disclosed in ITR, but Schedule FA is not filled.

Case B: Income also not disclosed and foreign asset also not disclosed

Example: foreign bank interest, foreign dividend, capital gain on sale of foreign shares or RSU perquisite is not shown in ITR, and Schedule FA is also omitted.

Thus, filing ITR alone is not sufficient. Correct Schedule FA disclosure is equally important.

14. Rate to be Applied for Converting Foreign Assets and Foreign Income into INR

For Schedule FA reporting, foreign assets and foreign accounts should be converted into Indian rupees by applying the Telegraphic Transfer Buying Rate (TTBR) of the State Bank of India. The relevant date depends on the item reported: for peak balance, the rate on the date of peak balance; for investment value, the rate on the date of investment/acquisition; and for closing value, the rate on the closing date of the relevant calendar year. For foreign income, conversion should be made as per Rule 115 of the Income-tax Rules, 1962, depending on the nature of income such as salary, dividend, capital gain or other income. Google exchange rate, RBI reference rate, broker rate or credit card rate should not be used for ITR reporting.

Final conclusion

Foreign asset reporting has become a high-risk compliance area in Indian taxation. Resident taxpayers holding RSUs, ESOP shares, foreign bank accounts, foreign brokerage accounts, foreign company shares, foreign property, foreign trusts or foreign signing authority must carefully examine Schedule FA applicability before filing ITR.

The most common mistake is reporting the income but omitting the asset disclosure. Such omission may expose the assessee to penalty under the Black Money Act even where the asset was acquired from disclosed sources. Therefore, taxpayers should not treat foreign asset reporting as optional or secondary.

Proper filing of Schedule FA, Schedule FSI, Schedule TR and Form 67, wherever applicable, is the safest way to avoid notices, e-verification proceedings, reassessment, penalty and unnecessary litigation.

The author can also be reached at varunmukeshgupta96@gmail.com