Penalty of ₹10 Lakh for Not Disclosing Foreign Income: What You Need to Know

The Indian government has ramped up efforts to tackle tax evasion, especially when it comes to unreported foreign income and assets. If you’re a resident of India, it’s crucial to know your responsibilities and avoid hefty penalties.

What is Foreign Income Disclosure?

If you earn income outside India—be it from a foreign job, investments, business, or property—you are required to report it under Section 139 of the Income Tax Act. Failing to disclose this can lead to legal trouble.

The Role of FATCA and CRS

India is part of international agreements like the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). These enable Indian tax authorities to get details of foreign accounts held by Indian residents.

What Happens If You Don’t Report?

Penalties

1. Underreporting Income:

   • A penalty of 50% of the tax on unreported income.

2. Misreporting Income:

   • If intentional, the penalty can go up to 200% of the tax on that income.

3. Penalty for Non-Disclosure of Foreign Income or Assets:

   • A ₹10 lakh fine can be imposed for deliberate non-disclosure.

Criminal Charges

For severe cases of intentional evasion, you might face:

• Fines of up to three times the tax owed.
• Imprisonment for up to 7 years.

How Can You Stay Compliant?

1. Always disclose all sources of foreign income in your tax returns.
2. Keep records of foreign bank accounts, investments, and properties.
3. Consult a tax professional to avoid errors.

Section 285BA: Reporting of Financial Transactions

Section 285BA requires specified financial entities like banks, mutual funds, and other institutions to report certain financial transactions to the Income Tax Department. This ensures better monitoring of income and assets, especially those held abroad.

What Transactions Are Reported?

Transactions that must be reported include:

• Foreign income and assets.
• Large cash deposits or withdrawals.
• Significant investments in shares, bonds, or mutual funds.
• Property transactions exceeding specified thresholds.

Why It Matters

Transparency in reporting foreign income isn’t just a legal requirement; it ensures you avoid unnecessary penalties and contributes to a fairer tax system. The government’s strict measures reflect its commitment to preventing tax evasion and promoting accountability.