ITR filing 2026: Foreign income and overseas assets? Avoid these 7 costly disclosure mistakes
Returning Indians face new tax filing complexities. Foreign retirement accounts now necessitate the more detailed ITR-2, moving away from the simpler ITR-1. Tax authorities are leveraging global information exchange to track overseas assets and in...
The reporting of foreign income has emerged as a key pain point for many taxpayers in recent years.
Consider this: You returned from the US mid-August after a two-year job stint. Since you always intended to come back, you did not invest in overseas stocks, mutual funds, or bonds. During your stay in the US, your employer had enrolled you in a retirement plan (for example, 401(k)). You never paid attention to it and certainly didn’t think of it as an ‘investment’. You are now a resident (and ordinarily resident) taxpayer, and your only source of income currently is salary (less than Rs.50 lakh) from your Indian employer. You expect to file a simple ITR-1 (Sahaj), like you had done in earlier years.
However, the income tax department has different plans this tax return filing season (financial year 2025-26, assessment year 2026-27). You will not be able to use ITR-1 now if you hold foreign retirement accounts. You will, therefore, have to file the more complex ITR-2, and make multiple, detailed disclosures in Schedule FA (foreign assets) and other documents. This change, in fact, rectifies an anomaly and clarifies that individuals with foreign income or asset cannot use ITR-1. Those with business or professional income can use ITR-3.
Reporting of foreign income has emerged as a key pain point for many taxpayers in recent years. In November 2025, the income tax department, under its ‘NUDGE’ campaign, sent emails and messages to taxpayers with foreign income, exhorting them to review and revise their returns if needed, to correctly report the foreign assets in Schedule FA and Foreign Source Income (FSI) in their ITRs. The I-T department’s data-driven scrutiny and information exchange with foreign tax authorities have triggered tax notices for inadequate or flawed foreign income disclosures in recent years.
In Budget 2026, Nirmala Sitharaman announced a one-time, six-month amnesty scheme Foreign Assets of Small Taxpayers- Disclosure Scheme (FAST-DS) to allow taxpayers who may have inadvertently omitted their foreign assets to declare the same and avoid penal action under the stringent provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, or simply the Black Money Act.
Bear in mind: I-T knows it all
While the scheme is yet to be notified, taxpayers with a financial footprint overseas ought to exercise caution when filing returns. It is the first step towards an I-T notice-proof return. Yet, many end up not disclosing or under-reporting foreign income and assets. “This includes overseas brokerage accounts and investments held through them. Many taxpayers overlook the need to disclose foreign shares, RSUs (Restricted Stock Units), ESOPs (Employee Stock Options), and ESPP (Employee Stock Purchase Plan) holdings, often assuming that such assets are not reportable in India. As tax authorities increasingly focus on foreign asset reporting, ensuring complete and accurate disclosure of these holdings has become a critical area of compliance for taxpayers qualifying as ROR (resident and ordinarily resident),” says Amarpal Chadha, Tax Partner, EY India.
But many taxpayers continue to take a less-than-meticulous approach while disclosing such financial transactions.
“The most noticeable trend this year is the widening gap between what taxpayers believe the I-T department knows and the information that is actually available to the tax authorities through global informationsharing mechanisms. Many taxpayers continue to wrongly assume that foreign assets remain outside the tax radar unless funds are transferred to India,” says Mayank Mohanka, Founder, TaxAaram.com.
Tax authorities have access to international information-exchange frameworks such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), which means overseas income is unlikely to go unnoticed. “They have access to a significantly wider pool of overseas financial information than most taxpayers realise. Consequently, foreign bank accounts, investment portfolios, retirement accounts and overseas income streams are becoming far more visible than before,” he adds.
Here’s an easy guide to declaring your foreign income, assets and reporting the details in various schedules and forms.
Taxpayers who have returned to India should first ascertain their tax residency status – ordinarily resident (ROR), resident but not ordinarily resident (RNOR), or non-resident (NR). “A resident individual will generally qualify as RNOR if he has been a non-resident in 9 out of the 10 preceding financial years, or has stayed in India for 729 days or less during the 7 preceding financial years. Once these conditions are no longer satisfied, the individual becomes an ROR,” explains Mohanka. This distinction is crucial because the obligation to disclose foreign assets in Schedule FA generally applies only to ROR taxpayers. “Many returning professionals fail to revisit their disclosure obligations when they transition from RNOR to ROR status,” he points out.
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Taxpayers often assume that disclosure is required only when shares are sold, income is earned, or funds are remitted to India. In most cases, there is no deliberate non-disclosure. “Rather, this is a lack of awareness that foreign asset reporting obligations expand significantly once a returning Indian moves from RNOR to ROR status,” he adds.
Disclose income from overseas
Compliance is not a maze only for those returning from foreign countries. Professionals who provide services to overseas firms while living in India and have an ordinary resident status also need to make the requisite disclosures of such foreign income in their ITR. You could be a tax professional offering consultancy services to clients in, say, the US or a content creator who draws income from Dubai-based firms.
You need to bear in mind two key schedules– TR (tax relief) and FSI (foreign source income) in ITR. “Schedule TR relates to claiming foreign tax credit. Here you have to report the amount of tax paid outside India, and the tax credit available in India, so that the same income is not taxed twice,” explains chartered accountant Ashish Karundia, Founder, Ashish Karundia & Co. Schedule FSI is meant to capture all the income earned outside India. “Here, you will report the details of the foreign income, the corresponding article of the DTAA, the tax paid on income earned outside India, the tax payable on such income in India, and the tax relief available. Schedule FA goes a step further—it requires details of the foreign assets you hold, along with the income earned from outside India,” he explains.
Do make a note of one crucial difference between schedules FSI, TR and FA—the reporting period. “Schedule FA is always based on the calendar year (January to December), whereas Schedules FSI and TR follow the normal financial year (April to March). This is where many taxpayers make mistakes. They report the financial year in both schedules, leading to mismatches. In Schedule FA, you must report only the calendar year period, that is, January to December,” says Karundia. So, your ITR for FY2025-26 (AY 2026-27) will include the status of foreign assets/income during the January-March 2025 quarter too.
Your ITR filing toolkit
Steer clear of common errors to avoid I-T scrutiny 1. Not monitoring the shift from RNOR to ROR status 2. Not disclosing foreign asset details in Schedule FA 3. Assuming foreign assets need disclosure only when shares are sold
5. Reporting Schedule FA for April-March instead of Jan-Dec 6. Using internet exchange rates instead of SBI TT Buying Rate 7. Not filing Form 67 while claiming foreign tax credit
Documentation checklist
Foreign bank account statements
Brokerage/investment statements
Employer payslips
RSU grant letters
ESOP grant/exercise records
ESPP statements
Retirement account statements
Foreign tax returns filed
Tax withholding certificates
Documents relating to purchase/
sale of foreign assets
Note: The list is not exhaustive; source: Ashish Karundia, TaxAaram.com and EY India
Take note of disclosures needed
Forms ITR-2 and ITR-3 require detailed disclosures, leaving scope for errors to creep in. Lack of awareness is another challenge. “The most commonly missed disclosure is the non-filing of information in Schedule FA. Taxpayers often overlook dormant foreign bank accounts, payroll accounts maintained overseas, retirement plans such as US’ 401(k)s, individual retirement accounts (IRAs), superannuation funds, and pension accounts, believing that disclosure is required only when money is withdrawn,” says Karundia.
Similarly, holdings acquired through RSUs, ESOPs, and ESPPs are frequently overlooked, especially when shares have not yet been sold. “Taxpayers assume that since tax has been paid on receipt, there is no need to report until they are sold. Similarly, jointly held accounts with spouses and small-value overseas accounts are also often omitted. Individuals holding the position of trustee, beneficiary, or settlor, in trusts created under the laws of a country outside India, often forget to disclose the details in Schedule FA,” he adds. Do not assume that disclosures are required only when shares are sold, income is earned, or funds are remitted to India.
“For example, a software engineer returning from the US may continue to hold vested shares of, say, Alphabet Inc, in a foreign brokerage account. Even if no shares are sold during the year, the holding may still require disclosure once the individual becomes an ROR. Similarly, foreign bank accounts closed during the year and overseas retirement accounts are frequently overlooked despite remaining reportable,” says Mohanka. From this year, tax authorities have made it clear that taxpayers with foreign retirement accounts, a common source of error when selecting the ITR form, will not be eligible to file the simpler ITR-1.
Forms that matter Salary + foreign assets + retirement accounts
If you have...
Understand DTAA, Form 67
Double tax avoidance agreements between two countries are meant to ensure that a taxpayer does not have to pay tax on the same income twice. “Treaties may allow either an exemption, a lower tax rate, or a credit for taxes already paid overseas. DTAA remain relevant as long as the individual has cross-border income that is taxable in more than one country. In practice, the importance of DTAA increases once the individual becomes a ROR in India and their foreign income becomes taxable in India,” explains Chadha of EY India.
Taxpayers seeking to claim credit for taxes paid overseas must furnish Form 67, along with other supporting documents. “Alternatively, if a treaty exemption needs to be claimed on the India tax return, then individuals must ensure proper documentation. This typically includes obtaining a Tax Residency Certificate (TRC) from the foreign country and furnishing required details or declarations such as Form 41 (erstwhile Form 10F– under Income Tax Act, 1961), along with maintaining supporting documents like overseas tax returns for any future enquiries/audit,” he adds.
Inaccurate filing of Form 67 can have serious repercussions. “Incomplete or incorrect reporting can result in assessment proceedings, denial of treaty benefits or foreign tax credits, interest liability, and penalties under the Income Tax Act,” says Karundia If you have a foreign retirement benefit account, Form 10EE also becomes relevant. “Taxpayers intending to defer taxation of income accrued in a notified foreign retirement benefit account (such as a 401(k) or Traditional IRA) should ensure timely filing of Form 10EE (now Form 40 under I-T Rules 2026) before filing the income-tax return, as the deferment benefit is subject to prescribed compliance only,” he says.
Track exchange rates
This is what makes the return-filing process for those with foreign incomes more complex. “Taxpayers often use exchange rates sourced from internet portals or rates prevailing on the date of filing the return, instead of the prescribed State Bank of India Telegraphic Transfer Buying Rate (TTBR), wherever applicable,” points out Mohanka of TaxAaram. Even minor differences can have an impact when your portfolio entails large overseas holdings. “For instance, the USD-INR reference market rate was around Rs.94.74 per dollar on 23 June 2026, but the SBI TT Buying Rate on that date stood at approximately Rs.94.30; a difference of nearly 0.46%,” he says. Apply that to a large stock portfolio or retirement account, and the reporting gap adds up fast. Mohanka’s return-filing experience for his clients also shows that taxpayers often report only the closing balance in a foreign account rather than the peak balance during the relevant reporting period, and tend to miss dormant or zero-balance accounts entirely, despite continuing disclosure obligations.
Focus on documentation
Foolproof documentation is your defence against any I-T queries that might arise. These include overseas bank account statements (including savings and deposit accounts), brokerage/ investment account statements, and employer-issued payslips.
“It is important to keep at hand documents pertaining to RSU and ESOP grants, vesting and exercise records, stock purchase plan statements, pension account statements and documents relating to the acquisition or disposal of foreign assets,” says Chadha of EY India. Taxpayers should also retain records of foreign taxes paid (foreign tax returns) and the exchange rates used for currency conversion.
Mohanka recommends maintaining a paper trail of seven years to respond to any tax notices. “Retain final, year-end portfolio statements from international brokerages (example, Fidelity, Morgan Stanley) showing peak values, alongside specific RSU Vesting and Release Confirmation reports. Likewise, official foreign tax slips—documents equivalent to India’s Form 16 or 26AS, such as the US W-2, US Form 1099, UK P60, or Singapore Form IR8A,” he says.
Exercise caution if dividends are automatically reinvested into shares. Keep records of the number of shares acquired and their acquisition cost, as these are essential for computing capital gains when the investments are eventually sold, advises Karundia.
Be mindful of penalties
Not adhering to the rules and failing to make disclosures can lead to severe consequences, including the invocation of the Black Money Act.
“This can potentially lead to substantial tax demands, a penalty of Rs.10 lakh and, in serious cases, prosecution. Given the increasing availability of overseas financial information to Indian tax authorities through global information exchange mechanisms, accurate and complete disclosure has become more important than ever,” sums up Karundia.
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