1. Introduction

• Schedule FA addressing the disclosure of foreign assets, was introduced as an integral component of the Income Tax Return Form (ITR) from the Assessment Year 2012-13.
• Schedule FA was introduced through the amended ITR forms for AY 2012-13 which is relevant for FY 2011-12.
• As a part of the income tax filing process, Schedule FA requires taxpayers to disclose details about their investments, including stocks, mutual funds, and other financial instruments.
• It enables the Income Tax Department to consider the data for analyzing the risk parameters for the assessee.

2. Applicability of Disclosure Requirement

• The reporting requirement of foreign assets in Schedule FA, applies to all residents & Individuals & HUF who are R&OR.
• Fourth proviso to Section 139(1): A person, being a resident other than not ordinarily resident holding overseas assets is mandatorily required to file their income tax return irrespective of their total income in the following two scenarios:

Beneficial Owner: in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person.

Beneficiary: in respect of an asset means an individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary.

• Fifth proviso to Section 139(1): The mandatory ITR filing requirement would not apply to an individual being a beneficiary of any assets (including any financial interest in any entity) located outside India, where, income if any arising from such assets is includible in the income of the beneficial owner or legal owner.
• Foreign citizen who qualifies as R&OR would also be required to disclose all their foreign assets in Schedule FA. However, a note below Schedule FA provides relaxations for certain foreign citizens as below:

“In case of an individual, not being an Indian citizen, who is in India on a business, employment or student visa, an asset acquired during any previous year in which he was non-resident is not mandatory to be reported in this schedule if no income is derived from that asset during the current previous year.”

• Thus, the exclusion for disclosure of foreign assets in the case of foreign citizens will be applicable if all the below mentioned conditions are fulfilled:

1. 1. Person is a foreign citizen
   2. Has come to India on a business/employment/student visa
   3. Foreign assets was acquired when he was NR of India
   4. No income is derived from such foreign assets during PY

3. Reporting under Schedule FA

• Currently, Schedule FA encompasses 10 tables, each demanding comprehensive information related to various foreign assets and income particulars

• Extract of Table A1 – Details of Foreign Depository Account held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

• The term depository account is defined in Rule 114F as under:

“Depository account” includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a financial institution in the ordinary course of a banking or similar business and also an amount held by an insurance company pursuant to a guaranteed investment contract or similar agreement to pay or credit interest thereon.

• Extract of Table A2 – Details of Foreign Custodial Account held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

• The term custodial and custodial institution is defined in Rule 114F as under:

1. 1. “Custodial account” means an account (other than an insurance contract or annuity contract) for the benefit of another person that holds one or more financial assets”.
   2. “Custodial institution” means any entity that holds, as a substantial portion of its business, financial assets for the account of others and where its income attributable to the holding of financial assets and related financial services equals or exceeds twenty percent of its gross income during the three financial years preceding the year in which determination is made or the period during which the entity has been in existence, whichever is less.

• Extract of Table A3 – Details of Foreign Equity and Debt Interest held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

• Extract of Table A4 – Details of Foreign Cash Value Insurance Contract or Annuity Contract held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

The terms insurance contract, annuity contract, cash value insurance contract are defined in Explanation to Rule 114F as under:

• “Insurance contract” means a contract (other than an annuity contract) under which the issuer agrees to pay an amount upon the occurrence of a specified contingency involving mortality, morbidity, accident, liability, or property risk;
• “Annuity contract” means a contract under which the issuer agrees to make payments for a period of time determined in whole or in part by reference to the life expectancy of one or more individuals;
• “Cash value insurance contract” means an insurance contract (other than an indemnity reinsurance contract between two insurance companies) that has a cash value and in case of a U.S. reportable account such value is greater than an amount equivalent to fifty thousand U.S. dollars.
• “Cash value” means the greater of —

1. 1. the amount that the policyholder is entitled to receive upon surrender or termination of the contract (determined without reduction for any surrender charge or policy loan); and
   2. the amount the policyholder can borrow under or with regard to the contract,…

• Extract of Table B – Details of Foreign Interest in any entity held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

For the purposes of disclosure in table B, financial interest would include, but would not be limited to, any of the following cases:-

• the resident assessee is the owner of record or holder of legal title of any financial account, irrespective of whether he is the beneficiary or not.
• the owner of record or holder of title is one of the following:-

1. 1. an agent, nominee, attorney or a person acting in some other capacity on behalf of the resident assessee with respect to the entity;
   2. a corporation in which the resident assessee owns, directly or indirectly, any share or voting power;
   3. a partnership in which the resident assessee owns, directly or indirectly, an interest in partnership profits or an interest in partnership capital;
   4. a trust of which the resident assessee has beneficial or ownership interest.
   5. any other entity in which the resident assessee owns, directly or indirectly, any voting power or equity interest or assets or interest in profits.

• Extract of Table C – Details of Immovable property held(including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

• Extract of Table D – Details of any other Capital Asset held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022.

• Extract of Table E – Details of account(s) in which you have signing authority held (including any beneficial interest) at any time during the calendar year ending as on 31st day of December 2022 and which has not been included in A to D above.

• Extract of Table F – Details of trusts, created under the laws of a country outside India, in which you are a trustee, beneficiary or settlor.

• Extract of Table G – Details of any other income derived from any source outside India which is not included in, (i) items A to F above and, (ii) income under the head business or profession.

General Instructions

• The data in Schedule FA is required to be filled up for a particular calendar year.
• For the purpose of this Schedule, the rate of exchange for conversion of the peak balance or value of investment or the amount of foreign sourced income in Indian currency shall be the “telegraphic transfer buying rate” of the foreign currency as on the date of peak balance in the account or on the date of investment or the closing date of the accounting period.
• Telegraphic transfer buying rate means the rate or rates of exchange adopted by SBI.

Disclosing Foreign Company ESOPs in Schedule FA

ESOPs (Employee Stock Option Schemes) granted by a foreign company are indeed considered foreign assets and must be disclosed in Schedule FA of your Income Tax Return (ITR).

Understanding ESOPs and Schedule FA

• ESOPs: These are options granted to employees to purchase company shares at a predetermined price in the future. Even if the options haven’t been exercised, they represent a potential asset.  
• Schedule FA: This schedule is mandated for Indian residents to disclose their foreign income, assets, and investments.  

How to Disclose ESOPs in Schedule FA

1. Categorize the Asset: ESOPs would typically fall under the category of “Investments in Foreign Equity/Debts” in Schedule FA.
2. Provide Basic Details:
   • Name of the foreign company
   • Country where the company is incorporated
   • Date of grant of ESOPs
   • Exercise price of the ESOPs
   • Number of ESOPs granted
3. Detail Investment Values:
   • Fair market value of the ESOPs as on the last day of the financial year
   • Any increase or decrease in the value of the ESOPs during the year
4. Report Income and Proceeds:
   • If you exercised any ESOPs during the year, report the income generated
   • If you sold the acquired shares, report the proceeds from the sale  

Important Considerations

• Valuation: Determining the fair market value of unexercised ESOPs can be complex. It’s advisable to consult with a valuation expert if required.
• Currency Conversion: All values should be converted to Indian Rupees for reporting in Schedule FA.  
• Tax Implications: Exercising ESOPs might have tax implications in both the country of the company and India. Consult a tax professional to understand your tax liabilities.
• Penalties: Non-disclosure or incorrect disclosure of foreign assets can lead to severe penalties.  

Additional Tips

• Maintain Records: Keep detailed records of your ESOPs, including grant details, exercise price, valuation, and any transactions related to them.
• Seek Professional Advice: If you have doubts or complexities related to ESOP disclosure, consult a tax professional or chartered accountant.

By accurately disclosing your foreign company ESOPs in Schedule FA, you ensure compliance with Indian tax laws and avoid potential penalties.

Disclaimer :- The Above is Just for Educational Purpose. You Should Consult your Tax Advisor for more details.