Investment in USA Co

To report an investment in a foreign company (such as ONPASSIVE A.I. Co.) in your Income Tax Return (ITR) as a Resident and Ordinarily Resident (ROR) individual, you must follow specific disclosure requirements to avoid severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act.

1. Mandatory Disclosure in Schedule FA

You cannot use ITR-1 (Sahaj) if you hold foreign assets. You must file ITR-2 (or ITR-3 if you have business/professional income). The investment must be disclosed in Schedule FA (Foreign Assets).

• Reporting Period: Unlike your Indian income, which is reported for the Financial Year (April–March), Schedule FA must be reported for the Calendar Year (January 1 to December 31). For the current assessment year, you would report the status of the investment for the calendar year ending December 31, 2025.

• What to Disclose: You need to provide details such as the country name and code, the name and address of the foreign entity, the date of acquisition, the initial investment value, the peak value during the calendar year, and the closing balance.

• Currency Conversion: All values must be converted to Indian Rupees (INR) using the "Telegraphic Transfer Buying Rate" (TTBR) as notified by the State Bank of India.

2. Reporting Income in Schedule FSI

If your investment has generated income (such as dividends), you must report this in Schedule FSI (Foreign Source Income).

• This schedule follows the Indian Financial Year (April to March).

• If you have paid taxes on this income in the foreign country, you can claim a Foreign Tax Credit (FTC) in Schedule TR by filing Form 67. This prevents double taxation under the Double Taxation Avoidance Agreement (DTAA).

3. Taxation of Gains

When you eventually sell or redeem these shares, the gains are taxable in India:

• Holding Period: Gains are categorized based on how long you hold the shares.

• Capital Gains: For most foreign stocks, these are generally taxed as capital gains. If you hold them for more than 24 months, they are considered Long-Term Capital Gains (LTCG) and are taxed at 12.5% (without indexation). If held for 24 months or less, they are Short-Term Capital Gains (STCG) and are taxed at your applicable slab rates.

Summary Checklist for Your Client

• Form: Use ITR-2 or ITR-3 (never ITR-1).

• Schedule FA: Fill out the details based on the calendar year (Jan–Dec).

• Schedule FSI: Report any income earned based on the financial year (April–March).

• Form 67: File this if you intend to claim a tax credit for taxes paid abroad.

• Compliance: Ensure you have your brokerage or investment statements ready, as the Income Tax Department strictly monitors these disclosures.

Disclaimer: This information is for educational purposes. Foreign asset reporting is complex; it is strongly recommended that your client consults with a qualified Chartered Accountant to ensure all details, especially currency conversion and treaty claims, are handled accurately to avoid the flat ₹10 lakh penalty for non-disclosure.

Summary: As a resident taxpayer, your client must report the foreign investment in Schedule FA of their ITR (using ITR-2 or ITR-3), reporting data for the calendar year (Jan–Dec). Any income earned must be reported in Schedule FSI, and tax credits for foreign taxes paid can be claimed by filing Form 67. Failure to disclose these assets can lead to significant penalties under the Black Money Act.