Have an inactive foreign bank account? You may still need to disclose it in your ITR for AY 2026-27

A lot of Indians who went abroad for studies, work or business had to set up a local bank account in that country. However, due to changing situations, these accounts might end up with no money and become dormant. If that's the case, you have to report this dormant foreign bank account in your income tax return (ITR) for AY 2026-2027. If you don't, you risk a tax notice for defective ITR or even scrutiny in extreme cases.

For example: If Mr. A is a Resident and Ordinarily Resident (ROR) in India during the relevant previous year, the dormant foreign bank account has to be disclosed in Schedule FA, even though no transaction took place during the year and the account had nil balance.

According to Chartered Accountant Naveen Wadhwa, vice president, Taxmann says the need to furnish Schedule FA is not linked to the amount in the bank account or whether any income was generated from it. What matters is if the taxpayer had the foreign bank account at any time during the relevant reporting period. So, these accounts are still considered foreign assets and should be reported in the Income-tax Return.


Also read: NRI woman sold her property in Gujarat for Rs 21 lakh, tax dept sent notices, she missed them as she lived abroad; later she files case and wins in ITAT Ahmedabad

Hence, before filing the income tax return (ITR), taxpayers should review all foreign bank accounts, whether active, dormant or having a nil balance, to ensure that the applicable disclosure requirements are duly complied with.

Wadhwa says: "Failure to provide accurate information in Schedule FA can result in a penalty of Rs 10 lakh. Additionally, the individual may face imprisonment for six months to seven years, along with fines."

What is the meaning of beneficial owner or beneficiary for reporting in Schedule FA?

Explanation 4 to Section 139(1) of the Income-tax Act 1961 defines the meaning of 'beneficial owner'. As per the Explanation, a beneficial owner means an individual who has provided, directly or indirectly, consideration for the asset. Further, if such asset is held for the immediate or future benefit of the individual providing the consideration or any other person.

Also read: 10 major changes in ITR forms for AY 2026-2027 that you must know before filing ITR

Do taxpayers need to disclose foreign ESOPs, RSUs or ESPPs even if they have not sold them?

Wadhwa says that if a taxpayer is a Resident and Ordinarily Resident (ROR) in India and holds foreign shares acquired under an Employee Stock Option Plan (ESOP), Restricted Stock Units (RSUs) or an Employee Stock Purchase Plan (ESPP), such holdings have to be disclosed in Schedule FA, even if they were not sold during the relevant previous year.

The need to furnish Schedule FA is not dependent on the sale of the shares or the income from them. Instead, it is based on whether the taxpayer held the specified foreign asset during the relevant reporting period. Accordingly, the reporting requirement arises even where no capital gains, dividend or other income has arisen from foreign employee stock holdings.

Should details of Foreign Assets be reported in Schedule AL if they have been duly reported in Schedule FA?

Schedule AL in Income-tax returns form (ITR 2 and ITR 3) requires individuals/HUFs to declare the value of assets and liabilities if their total income exceeds Rs. 1 crore. Further, Schedule FA requires reporting of assets held outside India. Reporting in Schedule FA is mandatory for a taxpayer who is a resident in India. Non-resident (NR) or a Not-ordinarily Resident (NOR) taxpayers don't have to file it.

Though both schedules need to be reported, they serve different purposes. Schedule FA seeks details of foreign assets and income from any source outside India. An assessee has to enter details of foreign assets if they were held even for a single day during the relevant accounting period.

On the other hand, Schedule AL seeks details of assets and liabilities the assessee holds at the end of the previous year. Therefore, details of foreign assets are to be reported in Schedule AL if the assessee holds the same at the end of the previous year.