An honest reporting mistake concerning overseas holdings can now brand compliant taxpayers as potential 'black money' holders, leading to severe financial penalties and immense mental distress. Recent enforcement actions by the Income Tax Department highlight a stringent crackdown on disclosures related to foreign assets, even when these assets generate no income.
Case Studies: Salaried Professional and Retired Citizen Face the Heat
Consider the situation of a Mumbai-based senior executive at a multinational corporation. Between 2016 and 2020, he held stock options in his company's foreign parent entity. These options yielded no dividends or other income. His sole error was omitting to declare them in the Foreign Assets (FA) Schedule of his Income Tax Return (ITR).
In 2023, he received a summons. Despite explaining the omission was unintentional, the assessing officer imposed a penalty under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA). The fine was set at ₹10 lakh for each year of non-disclosure, totaling ₹40 lakh.
"There was no concealment of income, only a reporting failure," the executive stated. "I’ve been a salaried taxpayer with nearly 20 years of clean tax records. Nothing is more humiliating than being investigated for black money." His appeal to the Commissioner of Income Tax was rejected, and the case is now before the Income Tax Appellate Tribunal (ITAT).
In a separate instance, a retired senior citizen in Baroda faced a tax notice over a long-forgotten offshore insurance policy purchased in 1997 during his time as a Non-Resident Indian (NRI). Having returned to India in 2015 after liquidating most foreign assets, he was unaware that an insurance policy with a surrender value qualified as a reportable foreign asset. He is currently awaiting the department's order, hoping to avoid the steep BMA penalty.
The Rulebook: What Must Be Disclosed and The Risks of Non-Compliance
Tax regulations mandate that all resident and ordinarily resident (ROR) individuals must declare specified foreign assets annually in the FA Schedule of ITR-2 or ITR-3. This requirement stands regardless of whether the asset produced any income during the financial year.
The list of reportable assets is extensive and includes:
- Foreign bank and brokerage accounts
- Stocks, Employee Stock Options (ESOPs), and Restricted Stock Units (RSUs)
- Insurance policies with a surrender value
- Pension accounts
- Immovable property located outside India
Prakash Hegde, a Bengaluru-based Chartered Accountant, clarifies that "disclosing ownership of assets and reporting income from them are two separate compliance requirements." Failure to report can trigger a fixed penalty of ₹10 lakh per year under the BMA, along with the possibility of imprisonment for up to seven years, even in the absence of actual tax evasion.
Common Pitfalls and Increased Scrutiny
Experts point out several areas where taxpayers, especially salaried employees and returning NRIs, commonly err.
1. Foreign ESOPs and RSUs: From the date of vesting, these must be declared in the FA Schedule each year. Additionally, when employers sell a portion of shares (a 'sell-to-cover' transaction) to recover tax, that sale must be reported under capital gains in the ITR, even if gains are negligible.
2. Dividend Income: Dividends earned must be reported as income and also reflected in Schedule FA. The dividend amount sitting in a foreign account must continue to be disclosed in subsequent years until repatriated.
3. Returning NRIs: The moment an individual's status changes to 'Resident and Ordinarily Resident,' disclosure of all global assets becomes mandatory. Conversely, those who become NRIs but file as residents for convenience also invite unnecessary scrutiny.
Enforcement has intensified recently with the work of the Foreign Asset Investigation Unit (FAIU), established in 2021. Data exchange agreements with other countries have significantly enhanced the department's ability to detect undisclosed assets.
Pathways to Rectification and Recent Relief
There are mechanisms for taxpayers to correct past mistakes. The Union Budget 2024 provided some relief by exempting undisclosed foreign assets with an aggregate value under ₹20 lakh (excluding immovable property) from penalty and prosecution, though they still must be reported.
Furthermore, since December 2024, the tax department has begun emailing taxpayers when foreign assets are detected, offering a chance to file a revised ITR by December 31 to disclose assets from previous years.
A significant legal precedent was set by a Special Bench of the ITAT in October 2025 in the case of Vinil Venugopal & Ranjeeta Vinil. The tribunal ruled that penalties under the BMA are not automatic and must be applied judiciously, considering the taxpayer's intent. This offers a defense for those with genuine, inadvertent lapses.
Tax professionals advise individuals to proactively review their global holdings, seek employer guidance on reporting stock benefits, and ensure accurate residential status declaration. In an era of heightened data transparency, vigilance in foreign asset compliance is no longer optional for the Indian taxpayer.
