Foreign tax credit and Schedule FA disclosure on your Indian return

This page is for the year your status is changing, not a settled non-resident year. Three situations are common.

A returning NRI who has come back to India during the year may end up resident for that year, which can pull foreign income earned after return — and sometimes salary that straddled the move — into the Indian net.

An RNOR (Resident but Not Ordinarily Resident) is the transitional status many returnees hold for their first year or two back, under Section 6(6). An RNOR's foreign income is largely outside the Indian net unless it is from a business controlled in, or a profession set up in, India — but Indian income is fully taxable, and the Schedule FA disclosure question still arises.

A dual-status year is simply one where you were non-resident for part of it and resident for part, and the return has to reflect both correctly. In any of these, where foreign tax has been paid on income that India is also taxing, foreign tax credit comes into play; and once you are resident, the foreign-asset disclosure obligation switches on. Establishing the status correctly first is what determines how much of the foreign side even belongs on the Indian return.

When the same income is taxed both abroad and in India, you can claim credit in India for the foreign tax paid, so you aren't taxed twice (relief flows from Section 90 where there's a treaty, Section 91 where there isn't). The mechanism is Form 67, governed by Rule 128.

Form 67 is a statement of the foreign income and the foreign tax paid on it, filed online on the Indian tax portal. The key timing rule under Rule 128 is that Form 67 should be furnished on or before the end of the relevant assessment year — and as a matter of good practice it is filed on or before you file the return itself, so the credit is supported when the return is processed. Filing the return and claiming the credit without the supporting Form 67 in place is what gets credits disallowed.

The credit is generally the lower of the Indian tax on that income and the foreign tax paid on it — you don't get back more than India would have charged. Supporting proof of the foreign tax (a payment certificate, the foreign return, or tax deducted abroad) underpins the claim, so the figures in Form 67 tie to documents rather than estimates.

Schedule FA is the part of the ITR where a resident discloses assets held outside India. It is a disclosure, not a tax computation — completing it doesn't by itself create a tax bill — but it is mandatory once you qualify, and it is detailed.

It covers, broadly: foreign bank accounts (with the institution, account number, peak and closing balances), foreign equity and debt holdings, foreign mutual funds and similar interests, foreign cash-value insurance or annuity contracts, any beneficial interest in foreign entities or trusts, immovable property held abroad, and other capital assets. Balances and values are reported in the relevant period defined for the schedule, which is why peak-balance and conversion figures have to be assembled carefully from your overseas statements.

It is the residential status that triggers it: an RNOR or non-resident generally isn't required to fill Schedule FA in the same way an ordinary resident is, so confirming status first decides whether the schedule applies to you at all this year. Once it does apply, completeness matters more than almost anything else on the return, because of what non-disclosure can trigger.

Foreign assets and foreign income that a resident fails to disclose fall under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, which sits separately from the ordinary Income-tax Act and is deliberately strict. Undisclosed foreign income or assets can attract tax and a substantial penalty, and in serious cases the Act provides for prosecution. The schedule also carries a specific penalty exposure for failing to disclose foreign assets even where there may be no additional tax due.

The exact amounts, thresholds and which provision bites depend on the facts — the value involved, whether income was concealed as well as assets, and whether disclosure was simply missed or actively avoided — so the safe and accurate course is full disclosure rather than judging where a line falls. We don't quote a single penalty figure here because it varies by situation and is exactly the kind of thing to confirm against your facts.

The reassuring side is that the obligation is a reporting one. A genuine foreign account or investment, disclosed properly in Schedule FA with the foreign tax credited through Form 67 where relevant, is entirely routine. The risk is in omission, not in having the assets — which is why the disclosure is worth getting right the first time.

Meera returns to India partway through the year after several years in the UK. For this year she is resident, and likely RNOR for the next couple of years under Section 6(6). She still holds a UK current account, an ISA-style investment account and some UK-listed shares, and after her return she received a bonus from her former UK employer on which UK tax was withheld.

Because India is taxing that bonus and the UK already taxed it, she claims foreign tax credit: Form 67 is filed under Rule 128, setting out the UK income and the UK tax paid, on or before her Indian return goes in, so the credit — the lower of the Indian tax on that income and the UK tax paid — is supported when the return is processed.

Separately, as a resident for the year, her UK accounts and investments are disclosed in Schedule FA: the bank account with its peak and closing balance, the investment account, and the UK shares, each reported with the values assembled from her UK statements. None of that disclosure creates a tax by itself — it's the reporting obligation — but leaving it out is precisely what the Black Money Act is built to catch.

Filed together on ITR-2, with Form 67 supporting the credit and Schedule FA fully completed, Meera's return reflects both that she shouldn't be taxed twice on the bonus and that her foreign holdings are on the record. The order matters: her status is fixed first, then the credit, then the disclosure.

Most foreign tax credit problems aren't about whether you were entitled to the credit — they're about how Form 67 was put together. The form is a statement that has to tie cleanly to your Indian return and to your foreign tax documents, and a few recurring mismatches are what trigger a defect notice or get the credit knocked off when the return is processed.

The most common ones are simple to picture. The foreign income figure in Form 67 not matching the income you've actually offered to tax on the Indian return. Currency converted on the wrong basis, so the rupee figures don't reconcile (the income and the tax have to be converted using the prescribed reference rate, not a rate you've picked yourself). And proof of the foreign tax that is missing, unclear, or doesn't obviously cover the income claimed — no payment certificate, no foreign return, no evidence of tax withheld abroad.

The timing point under Rule 128 also matters. Form 67 is meant to be furnished by the end of the relevant assessment year, and in practice it should be in before or with the return, so the credit is supported the moment the return is processed rather than argued for afterwards. Tribunals have increasingly treated a late Form 67 as a procedural lapse rather than an automatic bar, but relying on that is the hard way — it can mean a notice, a reply, and sometimes an appeal to recover a credit that a clean, on-time filing would simply have allowed.

Packaged correctly, Form 67 carries the same income figures as the return, converts them on the right basis, and is backed by documents for every line of foreign tax claimed — so the credit holds without a fight.

Foreign tax credit is easy to picture when India has a treaty with the country you've paid tax in — that's the Section 90 route. But India doesn't have a treaty with every country, and people who've worked in or earned from a non-treaty country still shouldn't be taxed twice on the same income. That's what Section 91 is for: unilateral relief, given by India on its own, without any treaty behind it.

It applies when a few things line up together: you're resident in India for the year, the income accrued or arose outside India during that year, you've actually paid tax on it in the foreign country, and there's no tax treaty between India and that country. Where all of that holds, India still lets you set the foreign tax off against your Indian tax on the same income.

The amount works the same way it does under a treaty: relief is the lower of the Indian rate of tax and the foreign rate of tax on that doubly-taxed income, applied as a deduction from your Indian tax. So if the foreign country taxed the income at a lower rate than India, you get credit at that lower rate and pay the difference here; if it taxed at a higher rate, the credit is capped at what India would have charged. Either way you don't recover more than India's own tax on the income.

The mechanics on the return are the same too — the foreign income and foreign tax go through Form 67, and the relief is computed under Section 91 instead of a treaty article. The thing to get right is that not having a treaty is not the same as having no relief; it just changes which provision the credit comes from.

Schedule FA isn't one box; it's a set of tables, each for a different kind of foreign holding, and an account or asset has to land in the right one. The point of reading them this way is that an account you think of loosely as "my overseas account" usually splits across more than one table.

Beyond these, separate tables cover foreign cash-value insurance or annuity contracts, any financial interest in a foreign entity, interests in a foreign trust, signing authority over a foreign account, and other capital assets. Two things catch people out. The reporting period is the calendar year (January to December), not the Indian financial year — so balances and values are read off the calendar-year position. And it's the peak balance, not just the closing one, that has to be reported, which is why it's assembled from full statements rather than a year-end snapshot.

Why the care: a foreign asset left out of Schedule FA falls under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, and the exposure is real. Undisclosed foreign income or assets are taxed at a flat rate with no deductions or set-offs, the Act carries a specific penalty for failing to disclose a foreign asset in the return (Section 43), and serious cases can bring prosecution. The exact figures and which provision bites turn on the facts, so the safe course is complete disclosure rather than judging where a line falls — a genuine, fully-disclosed foreign account is entirely routine; the risk lives in the omission.

Credit for double tax can run both ways, and which side gives it depends on the treaty and on where each piece of income is taxed first. So as often as you're claiming foreign tax credit in India, your accountant abroad may need to claim credit there for the Indian tax you've paid — and to do that, they need clean proof from the India side. Assembling that pack is Indian-CA work; the foreign claim itself is your foreign preparer's.

The India-side documents that travel best are the ones that show, unambiguously, what was taxed in India and how much tax stuck. In practice that means: your Form 26AS and the Annual Information Statement (AIS), which show the TDS deducted and deposited against your PAN; Form 16A (TDS certificates) from the bank, tenant or buyer who deducted; the filed ITR with its acknowledgement; and the tax computation showing the income and the Indian tax on it. Where tax was withheld on a property sale or on NRO interest, the TDS certificate plus the challan reference is usually what the foreign side wants to see.

The reason this matters: a foreign tax authority generally wants proof that the Indian tax was actually borne, not merely that income was earned in India. Form 26AS and the AIS are the official record that the tax was deducted and credited to the government, which is exactly the assurance an overseas preparer is looking for before allowing credit on their return.

Getting this pack in order on the India side — correct, reconciled, and tied to your PAN — is what lets your foreign accountant give you credit there without back-and-forth. We prepare and reconcile it; how it's used on the foreign return is for your preparer in that country to handle under their own rules.