Hi,

One of my friends received the below email:

‘Our records indicate that you may have overseas financial interests (such as bank accounts, shares, or immovable property etc.) acquired in earlier years, that are required to be reported in Income Tax Return.

If your overseas financial interests (assets/ income) have been left unreported in your earlier Income Tax Returns or have been acquired through undisclosed sources, we encourage you to utilize the ongoing, one-time compliance window under the FAST-DS (Foreign Asset of Small Taxpayers - Disclosure Scheme). This dedicated window is open till 31.12.2026. Also, you may view your Foreign Assets Information on the AIS through e-filing portal. Note: This is an automated advisory to facilitate voluntary compliance and is not a legal notice.’

Background

  • He is an Indian citizen living overseas and files his Income Tax Returns as a Non-Resident. He had set his status as Non-Resident on the Income Tax portal.
  • During a recent visit to India he went to an Aadhaar enrolment/update centre to update his demographic details. The operator changed his status from Non-Resident to Resident, saying it was the only way to complete the update.
  • He then reactivated his dormant Demat and trading accounts, which were activated by default in Resident status. He is now getting these updated back to Non-Resident.
  • After returning overseas, at the end of September, he received an automated email stating:
    • Records indicate he may have overseas financial interests that should be reported in his ITR.
    • If any such interests were left unreported, he is encouraged to use the one-time compliance window under FAST-DS (Foreign Asset of Small Taxpayers – Disclosure Scheme), open till 31.12.2026.
    • The email is an automated advisory for voluntary compliance and is not a legal notice.
  • On checking the portal, he found that his profile status had automatically changed to Resident. He has now changed it back to Non-Resident. He has been filing his returns as a Non-Resident throughout.
  • At that point when he checked foreign assets information under coplaince portal section his AIS showed no foreign assets or income.

    Facts

    • On checking the Foreign Assets Information (FAI) section, he found a UK bank account balance of £31 reported for CY 2022.
    • He was an Indian resident from 2020 until March 2023, and has been non-resident since then.
    • The account was opened while he was non-resident, before 2020. The £31 is a small residual amount from money that a friend repaid him. He had given that money to the friend while non-resident, before 2020.
    • The account earned no interest and he had no other income from it.
    • In March 2023, he borrowed £3,200 from friends to manage his expenses for returning abroad in April 2023 in UK bank account. He repaid it in instalments between 2023 and 2026. 
    • A CA advised him to file an ITR-U for FY 2022-23 and show the CY 2022 foreign account balance as zero, as there was no income or interest.

    Questions

    1. Can an ITR-U be filed only to report this foreign account for CY 2022, when there is no additional tax or interest to pay? Is a nil balance the correct way to report it?
    2. Instead of an ITR-U, can he respond through the FAI feedback option (Compliance Portal → Reports, CY 2022) with this note: “The reported overseas account is a personal, non-interest-bearing current account maintained during my earlier non-resident period”?
    3. Does the March 2023 loan of £3,000 change the reporting position?
      • It falls in CY 2023, and he was non-resident from FY 2023-24 onward. Does it need to be reported anywhere?
      • Should the loan or its repayments be disclosed in the clarification, or would that complicate matters?
      • Are there any FEMA or other implications in the borrowing from a friend abroad while he was still resident?
    4. Does 20 lakh limit is per calender year or is it all together he is non resident? In wither case his balance is not going beyond £3200 (Approx 320000 INR)

    His understanding

    • The balance is negligible and falls within the threshold under the proviso to Section 43 of the Black Money Act, which he believes is ₹20 lakh after the 1 October 2024 amendment (previously lower).
    • So he should face no penalty even if a query arises, and only needs to clarify the position and now just update in the feedback section.

Any guidance from those who have handled similar cases would be very helpful.

Thank you.