Foreign investments in your portfolio? Follow this ITR checklist to avoid tax scrutiny

For the millions of resident Indians who have portfolios across international mutual funds, US stocks, GIFT City structures, or dividend-bearing foreign securities, the Income Tax Return (ITR) filing season carries a compliance burden that goes well beyond ticking a box. The rules are taxing and the penalties severe.

The starting point is residential status. “The mandatory requirement to disclose foreign assets and foreign income is applicable to individuals qualifying as Resident and Ordinarily Resident (ROR), irrespective of nationality and income taxability in India,” says Sudhakar Sethuraman, Partner at Deloitte India. This means even foreign nationals residing in India can be covered by these rules if they meet the residency criteria. There is no threshold for mandatory reporting of foreign assets. Taxpayers qualifying as ordinarily resident are required to report all foreign assets, regardless of their value or taxable income.

Rohit Garg, Partner at Shardul Amarchand Mangaldas & Co., echoes his views. “Every reportable overseas holding, such as foreign bank accounts, foreign shares/securities, financial interest in a foreign entity, immovable property, etc., should be disclosed in the applicable ITR schedule, even if the quantum is less,” says Garg.

Which form to file

Form selection is the first step. ROR individuals without business or professional income should file ITR-2, while those with such income, including firm partners, must use ITR-3. “ITR-4 cannot be used by taxpayers with overseas assets or income,” says Sethuraman—a mistake many small investors under the presumptive taxation scheme make.

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International mutual funds vs directly held overseas assets

This is where a significant portion of retail investors misread their obligations. Indian-domiciled international mutual funds, funds of funds that invest in overseas indices but are regulated and domiciled in India, do not require Schedule FA disclosure. “The taxpayer’s asset is a unit of an Indian mutual fund, not a directly held foreign asset,” explains Garg. “Therefore, while the underlying asset may be situated outside India, the primary asset held by the taxpayer is situated in India and will not fall under Schedule FA.” However, these holdings must appear in Schedule AL if the taxpayer’s total income crosses Rs.1 crore. The treatment is sharply different for directly held overseas mutual funds or ETFs, say a Vanguard fund, a Fidelity ETF, or any fund domiciled abroad. These are foreign financial assets and must be reported in Schedule FA without exception.

Foreign investments & ITR filing

Step 1: Does this apply to you?
Are you a Resident and Ordinarily Resident (ROR) in India?
Yes
Must disclose all foreign assets and income — regardless of nationality or whether income is taxable in India
Do you have any of the following holdings?

• Foreign bank account (even as a signatory)
• Overseas stocks, ETFs, and mutual funds held directly
• RSUs/ESOPs from a foreign employer
• Foreign brokerage/custodian account
• Financial interest in a foreign entity
• Immovable property abroad
• Foreign insurance policy (cash value)
• GIFT City investment with direct foreign exposure

Note: You must file Schedule FA if you have any of the above assets. There is no minimum threshold.
No
You are not required to file Schedule FA
Step 2: Which ITR form do you file?
ITR-2: Individual/HUF with no business or professional income
Note: Salaried, investor, retired. Has foreign assets/income.
ITR-3: Individual with business/professional income
Note: Also covers partners in firms with overseas assets.
ITR-4: Cannot be used if you have any foreign assets or income
Note: Switching from ITR-4 to ITR-2/3 is mandatory.

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Overseas stocks & Schedule FA

For those who buy US or other foreign equities directly through LRS-funded brokerage platforms, the compliance is complicated. Schedule FA requires disclosure of holdings in Table A2 (foreign custodian accounts, covering brokerage accounts) and Table A3 (foreign equity and debt interest). Crucially, the reporting period is the calendar year ending 31 December 2025 — not the Indian financial year. “Reportable foreign assets should be disclosed if they were held at any time during the relevant reporting period, even if they were disposed of before the end of the financial year,” says Garg. “Any reportable asset disposed of during the year should still be considered for Schedule FA reporting.” For valuation purposes, all peak balances and investment values must be converted to rupees at the telegraphic transfer (TT) buying rate of the relevant foreign currency as on the applicable date. The cost of acquisition is the standard benchmark for reporting investment value.

Documents’ action list

For foreign stocks/brokerage accounts

• Annual brokerage/custodian statement(Jan–Dec 2025)
• Transaction history (purchases, sales,dividends received)
• Dividend tax withholding certificates (e.g.,US 1042-S form)
• Corporate action records (splits, mergers,bonus shares)
• DRIP (Dividend Reinvestment Plan) statements — each reinvestment is a new acquisition entry

For RSUS / ESOPS

• Vesting schedule and vesting certificates
• Exercise records and sale transaction slips
• Employer TDS/perquisite valuation documents
• Proof of any tax deducted at source in the foreign country

For foreign bank accounts

• Full year bank statement (Jan–Dec 2025)
• Account opening date documentation
• Peak balance date identification

For overseas mutual funds / ETFs

• Fund account statement showing holdings as of 31 Dec 2025
• Purchase records (date, cost in foreign currency)
• Redemption/sale confirmations if sold during the year

For foreign tax credit claim

• Form 44 (or Form 67 under old rules) — filed with the return
• Foreign tax payment/withholding proof
• DTAA article reference for the applicable treaty benefit

Foreign dividends & tax credit

Foreign dividend income is not merely a footnote in Schedule FA. It must also appear under Schedule OS (income from other sources), and where foreign taxes have been withheld—as is routine with US dividend payments—taxpayers can claim a foreign tax credit (FTC). The mechanics require reporting in Schedule FSI (Foreign Source Income), claiming the credit in Schedule TR, and filing Form 44 (previously Form 67 under the old Incometax Rules) with evidence of the withholding. “Common errors include failure to report the corresponding foreign income, claiming FTC in excess of the Indian tax attributable to such income, and noncompliance with Form 44 requirements,” warns Sethuraman.

GIFT City structures

GIFT City investments fall into a grey area. Garg’s guidance is: “Investments made through GIFT City/IFSC platforms will need to be reported based on whether the investment in question is situated in India or not. In case the taxpayer is invested in a GIFT City platform which gives them direct or beneficial ownership of foreign securities, then Schedule FA disclosure should be considered.”

Cost of getting it wrong

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is not merely a deterrent on paper. “Non-disclosure or inaccurate disclosure of overseas assets/income can attract action under the Black Money Act, including tax on undisclosed foreign income/assets and separate penalties — proceedings may also attract penal consequences like imprisonment and separate penalties which may extend to multiple times the tax evaded,” says Garg. India receives overseas financial account information through CRS/AEOI and FATCA frameworks, which the tax department can match against Schedule FA and income disclosures. Where an omission is discovered post-filing, a revised return under Section 139(5) is available within the permitted window; beyond that, taxpayers should evaluate an updated return under Section 139(8A). “The key practical point is to correct the omission proactively, keep supporting records, and ensure that Schedule FA, foreign income schedules, capital gains, dividends, and foreign tax credit claims are consistent,” Garg advises.