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.