I am a resident Indian and had invested around ₹5 lakh in US-listed shares under LRS in November 2023. Since FY 2023–24 was my first year dealing with foreign income, I was not fully familiar with the applicable tax provisions or the disclosure requirements under Schedule Foreign Assets (FA). Though I disclosed the foreign shares under Schedule FA, I did not offer the dividend income for tax, assuming that it had been taxed in the US, nor did I report the dividend income under Schedule FA. Would the ₹20 lakh monetary threshold prescribed for non-levy of penalty under the Black Money Act apply in my favour?
—Name withheld on request
Assuming that your total income chargeable to tax in India exceeds the basic exemption limit, the global income taxation principle applies in your case. A resident individual is taxable in India on worldwide income, which includes dividend income from foreign shares. The fact that tax on dividends may have been withheld in the US does not render such income exempt in India. The dividend remains taxable under the Income-tax Act, 1961, and the appropriate course is to report it in the return of income and claim foreign tax credit in accordance with Rule 128 of the Income-tax Rules, 1962 and the applicable tax treaty, if any.
With regard to the ₹20 lakh threshold under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“BMA”), it is important to note that this threshold relates to the value of foreign assets and not to foreign income. Where a foreign asset has been disclosed in Schedule FA, the question of it being an “undisclosed foreign asset” may not arise; however, omission to report the related foreign income in the return can still be examined separately. The Assessing Officer retains discretion to consider initiation of penalty proceedings under the BMA if the statutory conditions are met, and the ₹20 lakh relaxation cannot be invoked merely because the amount of foreign income is small.
Key Considerations
You may consider declaring this income through an updated return. If such an updated return is filed on or before 31st March 2026, an additional tax of 25% of the aggregate of tax and interest payable would apply. At the time of filing the updated return, the foreign income may be appropriately disclosed in Schedule FA. It is important to note that filing an updated return does not, by itself, preclude the possibility of a discretionary penalty of ₹10 lakh under the Black Money Act, as the threshold is asset‑value based and not directly relevant where the asset is disclosed and only the corresponding income is omitted. Nevertheless, in light of judicial precedents, it may be arguable that penalty provisions ought not to be invoked where the lapse is bona fide and has been voluntarily rectified.
Alternatively, the Finance Bill, 2026 also proposes a one-time disclosure framework for certain taxpayers with undisclosed foreign income or assets. Under the proposal, where the value of undisclosed foreign income (i.e., income not taxed under the Income-tax Act) does not exceed the specified threshold of ₹1 crore, a declaration may be made on payment of tax at 60% of such income, along with the prescribed declaration, to obtain immunity from penalty (including the penalty of ₹10 lakh) as well as prosecution under the BMA.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs
