Taxpayers must mandatorily declare all their overseas belongings within the earnings tax return (ITR) and that features overseas shares as properly. So, even a person who has a taxable earnings beneath the essential exemption restrict of ₹2.5 lakh however holds, say, a Tesla or Apple inventory within the US will nonetheless must file the ITR simply to reveal this inventory holding.
Foreign shares must be declared within the ITR yearly so long as they’re held in your identify and never simply report the capital beneficial properties or losses whenever you promote them. “Disclosing possession of overseas belongings and reporting earnings from these belongings are two totally different necessities within the ITR. Both have to be accomplished,” said Suruchi Mahajan, a Bangalore-based chartered accountant and owner, Suruchi & Co.
The failure to declare international stocks, or any foreign asset such as real estate, bank accounts, bank deposits, insurance policies and other financial assets can invite scrutiny by the tax department under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
“The Foreign Asset Investigation Unit (FAIU), a newly formed wing set up under the Income Tax Act, will investigate information received from foreign jurisdictions under the Tax Information Exchange Agreements (TIEA),” stated Deepak Kakkar, a Delhi-based chartered accountant and senior supervisor, Jaikumar Tejwani & Co. LLP.
You may even be slapped with a ₹10 lakh penalty for every of the years that you don’t disclose the belongings. Foreign belongings are declared in schedule FA (Foreign Assets) in ITR-2 or ITR-3.
Taxation
When a overseas inventory is offered after two years, the beneficial properties comprised of it are handled as LTCG, or long-term capital beneficial properties, and taxed at 20% (surcharge further), with indexation profit, in India. Short-term capital beneficial properties (STCG) are taxed at your earnings tax slab charges. There isn’t any tax legal responsibility on capital beneficial properties abroad.
Dividend earnings earned on overseas shares is taxed at tax slab charges in India. In the US, when the dividend is paid, a flat 25% is withheld as tax. India has a Double Taxation Avoidance Agreement (DTAA) with the US by way of which you’ll declare the tax paid within the US to offset your tax legal responsibility in India on the time of submitting ITR. “To declare credit score of overseas taxes paid, one has to fill type 67 earlier than submitting the ITR. It ought to be accomplished within the yr of accrual. Accordingly, type 67 is required to be filed every year when the taxpayer desires to say overseas tax credit score,” said Vishwas Panjiar, Partner, Nangia Andersen LLP.
Tax reporting
Disclosure of foreign stocks starts right from the year in which they are bought. These are to be declared in table A3 under Schedule FA and the values are to be declared in rupees (the Indian currency) after conversion and not in the foreign local currency. The standard practice is to convert as per TT (telegraphic transfer) buying rate of the State Bank of India (SBI).
When you sell stocks, these should be reported under “sale of equity share” to calculate the capital beneficial properties and web tax payable on them. Do notice that conversion will occur on the web beneficial properties. “First calculate the beneficial properties within the native foreign money after which convert it into rupees. It could be inaccurate to first convert price of acquisition and value of sale in rupees after which calculate the beneficial properties/losses,” said Kakkar.
Reporting of dividends in the ITR is slightly complex. Dividends should be reported as income from other sources in the year in which these are paid and applicable tax should be paid on it. Panjiar pointed out that dividend is taxable in the year of accrual and does not necessarily depend on repatriation of the same in India.
In cases where tax is withheld in the country where the dividend is paid, the tax paid should be claimed as a deduction in your ITR in India to avoid paying double tax.
For instance, let’s assume you hold stocks of a US company and it has paid a dividend of $5,000, out of which $1,250 (25%) is deducted as tax in the US. Consider that you are in the 30% tax bracket and your total taxable income is ₹20 lakh, which includes the dividend income ₹4.1 lakh ($5,000 converted in rupees as per the prevailing rate). Your total tax liability will be ₹4.12 lakh. However, you can claim the amount ( ₹1.02 lakh) deducted as tax in the US while filing the ITR and your net taxable income will come down to ₹3.1 lakh. However, this can only be done if you submit form 67 before filing the ITR. Also, the extent of deduction or credit will not exceed your tax liability in India, said Kakkar.
Suppose, in the above example, if you are in the 5% tax slab and your total income is, say, ₹5 lakh, your tax liability would be ₹12,500. Setting off the tax paid in the US will make your tax due in India zero but you will not be reimbursed the remaining ₹89,000 (arrived by substracting the ₹12,500 tax liability in India from ₹1.02 lakh paid in the US).
Dividend is to be declared at two places in the ITR, explained Mahajan. “Dividend is reported under ‘income from other sources’ and the tax liability is determined. Separately, when you declare equity shares in schedule FA, there’s a section that asks whether you have earned income on this asset. You have to disclose the dividend payout here as well.”
The similar applies to shares as properly. In the yr a inventory is offered, the sale proceeds ought to be declared within the FA schedule beneath ‘total gross proceeds from sale or redemption of investment during the period’. But, the complete particulars additionally have to be reported beneath the capital beneficial properties part individually.
It ought to be famous that even when dividend is reinvested, it nonetheless must be declared as earnings. “Some individuals give their dealer a mandate to reinvest the dividends. They assume that since these are reinvested or aren’t repatriated, they don’t seem to be required to be reported. This is an error,” said Kakkar. Essentially, you will need to declare the dividend payout and also add it to the total shares value and declare those as equity shares in schedule FA.
All the information required to fill in the ITR with respect to cost of acquisition, fair market value, peak value, sale price of stocks is available in the statement provided by your broker. “Information on dividend and the tax withheld is given in form 1042s that can be downloaded from the foreign brokerage account,” stated Mahajan.
Do additionally notice that that is the primary yr that cryptocurrencies must be reported in ITR. Will cryptocurrencies which can be purchased, offered or held on a overseas alternate qualify as overseas belongings? While the IT legislation doesn’t outline this, Karan Batra, founder, charteredclub.com says it’s higher to declare these belongings in schedule FA together with reporting in Schedule VDA.
Taxpayers must also notice that, within the case of overseas belongings, ITR varieties require disclosures of belongings held at any time throughout the earlier calendar yr. For occasion, whereas submitting ITR for the evaluation yr 2023-24, you’ll need to declare overseas belongings held from 1 January 2022 to 31 December 2022. This is as a result of most international locations comply with the calendar yr, in contrast to India the place the monetary yr begins from 1 April. So, even for those who purchased overseas shares in February 2022, it have to be declared in schedule FA despite the fact that it falls in FY22 as per India’s fiscal calendar. Stocks or every other belongings purchased between January and March this yr aren’t required to be declared throughout the present ITR submitting train.
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Updated: 28 Jun 2023, 12:48 AM IST
