The Income Tax Department has intensified its scrutiny of foreign income and assets held by Indian taxpayers. Notices are being sent to employees of multinational corporations (MNCs) holding Employee Stock Options (ESOPs) from foreign parent companies, especially those who failed to declare dividend income or ownership of such shares in their income tax returns (ITRs).
First-Time Focus on Foreign Income and Assets
This is the first large-scale issuance of notices targeting Indian residents for non-disclosure of foreign assets, including property, shares, and dividends. A notable case involves a Gujarat-based individual employed at a Bengaluru IT firm who owns ESOPs granted by their American parent company. Tax authorities are leveraging information-sharing agreements with countries like the USA and UAE to identify ownership details of foreign assets.
GCCI Direct Tax Committee's Advisory
The Direct Tax Committee of the Gujarat Chamber of Commerce and Industry (GCCI) has urged taxpayers to take immediate action. "Taxpayers must revise their ITRs to include ESOPs and other foreign assets before December 31 to avoid penalties," the GCCI stated.
IT Department's Warning
According to an official notice from the I-T Department, failure to disclose foreign income or assets can lead to severe consequences, including penalties and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The notice reads:
"As part of ongoing collaborative efforts to ensure compliance with tax regulations, we have received information concerning foreign assets and income from the USA, such as bank accounts, interest, dividends, etc., that may be associated with you."
What Taxpayers Need to Declare
Tax professionals advise that individuals disclose the following in their ITRs:
- Foreign depository accounts and custodial accounts.
- Foreign equity and debt investments.
- Insurance contracts and financial interests in foreign entities.
- Immovable property abroad.
- Capital assets and signing authority for accounts in foreign countries.
- Roles in foreign trusts as trustees, beneficiaries, or settlers.
Consequences of Non-Disclosure
Non-compliance could result in penalties as high as ₹10 lakh for failing to report foreign assets. Additionally, underreporting income may attract a penalty of up to 200% of the evaded tax.
The I-T Department's efforts reflect a stricter enforcement of tax regulations concerning foreign income and assets, urging taxpayers to prioritize compliance to avoid hefty fines and legal complications.
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