Tax experts have issued a strong warning to Indian resident employees of multinational companies (MNCs) who hold Employee Stock Option Plans (ESOPs) or any other financial interests in overseas entities but have failed to disclose them in their Income Tax Returns (ITRs).
Non-disclosure of foreign assets under the Foreign Assets Schedule (Schedule FA)can attract a penalty of up to Rs. 10 lakh and may also lead to prosecution under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, they caution.
Employees who have received ESOPs from overseas parent companies, foreign subsidiaries, or listed entities abroad are legally required to report such holdings in Schedule FA if they qualify as residents under the Income Tax Act during the relevant assessment year. The obligation applies irrespective of whether the ESOPs have been sold or have generated income.
Even Small Foreign Income Must Be Reported
Experts underline that any foreign-sourced income, howsoever small, must be disclosed. This includes minor amounts such as dividends of a few US dollars, interest credited to foreign bank accounts, or capital gains from overseas securities. Failure to report even such nominal income can trigger proceedings under the Black Money Act, which operates independently of the regular income tax assessment framework.
“Taxpayers often ignore small dividend credits or fractional interest amounts in foreign brokerage accounts, assuming they are too insignificant to matter. This assumption is incorrect and risky,” a senior tax advisor said.
Automatic Exchange of Information Leaves Little Room to Hide
Under international tax treaties and global transparency frameworks such as the Automatic Exchange of Information (AEOI), including FATCA and CRS, the Indian Income Tax Department receives detailed financial information about Indian residents directly from foreign tax authorities. This includes data on overseas bank accounts, brokerage holdings, dividends, interest income and ESOP-related transactions.
Tax professionals caution that assuming such information will not reach Indian authorities or that enforcement action will not follow is no longer a safe bet. “The department already has the data. What is unfolding now is a calibrated compliance drive before harsher enforcement begins,” said a chartered accountant advising multinational employees.
No Limitation Period Under Black Money Act
A critical and often overlooked aspect of the Black Money Act is that there is no time limitation prescribed for initiating proceedings against defaulters. This means that undisclosed foreign assets or income can be acted upon at any point in the future, once detected.
“As data analytics improve and historical information is revisited, proceedings may be initiated years later. Sooner or later, such cases are likely to be picked up,” experts warn.
Revised or Updated Returns Offer a Narrow Exit Window
Tax advisors unanimously recommend that affected employees disclose foreign assets and income before any notice is issued, by filing revised or updated income tax returns within the permitted window. Voluntary disclosure at this stage significantly reduces litigation risk and may help taxpayers avoid the harsher consequences of the Black Money Act.
Disclosure Obligation Applies Only to Residents
Importantly, the requirement to report foreign assets and foreign income applies only to individuals who are classified as ‘Residents’ under the Income Tax Act for the relevant year. If an individual qualifies as a Non-Resident, including under applicable tax treaty provisions, foreign assets and income are not required to be reported in the Indian income tax return.
However, experts stress that residential status must be determined carefully, as an incorrect assumption could itself lead to serious compliance lapses.
Clear Advisory: Disclose Before Enforcement Begins
With the tax department stepping up data-driven enforcement and global information-sharing becoming increasingly seamless, professionals advise Indian resident employees with overseas ESOPs or foreign income to act promptly. Reporting foreign assets and income voluntarily, before enforcement action is triggered, is widely seen as the safest and most prudent course of action.
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