I left a foreign account or some foreign shares out of Schedule FA. What is the exposure, and is the Rs 10 lakh penalty automatic?
The penalty is under s.43 of the Black Money Act, is a flat Rs 10 lakh for each year of default, and is not automatic. A Special Bench of the Mumbai Tribunal has held that 'may' in s.43 carries its plain meaning and cannot be read as 'shall', so the officer has a discretion to be exercised on the facts with an application of mind. From 1 October 2024 no penalty arises at all where the aggregate value of foreign assets other than immovable property is below Rs 20 lakh.
Schedule FA of the return of income requires a resident to report foreign assets — bank accounts, financial interests in any entity, immovable property outside India, custodial accounts, equity and debt interests, insurance contracts with a cash value, foreign trusts in which he is settlor, beneficiary or trustee, and signing authority over any foreign account. The obligation is on the asset, not on the income: an asset that produces nothing, and an asset bought entirely out of taxed money remitted under the Liberalised Remittance Scheme, still has to be reported.
The sanction is not in the Income-tax Act. Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 provides that where a person who is a resident other than not ordinarily resident fails to furnish, or furnishes inaccurate particulars of, an asset located outside India in the return, the Assessing Officer may direct a penalty of ten lakh rupees. It is a flat amount and it runs for each year of default, so a single unreported account carried across four returns is a Rs 40 lakh exposure. That is why the ESOP and foreign brokerage cases have produced such disproportionate demands.
The threshold in the proviso is the first thing to check and it has moved. As originally enacted the proviso excluded from the penalty a foreign bank account whose aggregate balance did not exceed Rs 5 lakh at any time during the year. The Finance (No. 2) Act 2024, with effect from 1 October 2024, widened it: the exclusion now covers all assets held outside India, other than immovable property, whose aggregate value does not exceed Rs 20 lakh. Immovable property is outside the relief whatever it is worth. The change is prospective in operation and does not on its face rescue an earlier default, but the value of the asset is still the fact that shapes the discretion.
On discretion, the position is now settled at Tribunal level. In Vinil Venugopal v. DDIT (Inv.) a Special Bench of the Mumbai Tribunal answered a reference on whether the penalty is mandatory and automatic and held that it is not: the word 'may' has to be given its plain meaning and cannot be construed as 'shall', so the Assessing Officer has a discretion depending on the facts and circumstances of each case. The Bench's second point is the one to use on an order that is a single paragraph long — s.43 requires an opportunity of being heard, and that requirement would be empty if the levy were automatic, so the order has to show an application of mind. The corpus separately holds the Chennai Tribunal's order in Krishore Kumar Rajagopal, where the penalty on unreported foreign ESOPs was deleted as a technical breach because the perquisite had suffered TDS and the gain on sale had been returned, so there was no undisclosed income and no revenue loss.
Ownership is the other line of defence and it is under-used. In Sanjay Bhupatrai Shah v. DDIT [2025] 173 taxmann.com 316 (Mumbai) the Tribunal deleted a penalty where the assessee was a joint holder of an offshore fund investment for administrative convenience only, his son having declared full ownership; the omission rested on a bona fide belief that he was not the owner. Ocean Diving Centre Ltd [2023] 156 taxmann.com 360 (Mumbai) is to the same effect on bona fide belief. Neither is written up in this library; both are named here because the point they decide — legal holder against beneficial owner — is distinct from the technical-breach line.
What none of this reaches is the case where the foreign asset itself was funded out of unexplained money. Then the charge is not s.43 at all but the substantive charge under the Black Money Act, and the reasoning in the technical-breach cases does not travel.
One mechanical trap worth stating: Schedule FA is reported for the calendar year or the accounting period of the foreign jurisdiction rather than the Indian previous year in several of its tables, and the year mismatch is a frequent source of apparent non-disclosure where the asset was in fact reported in the adjacent year. Check the form's own instructions for the year in question before conceding an omission.
These notices are being issued in volume off automatic exchange of information data, and they land on salaried employees holding parent-company stock and on returning NRIs who still hold an overseas account — people with no undisclosed income at all. The demand is large, flat and repeated year by year, so the difference between an answered notice and an unanswered one is measured in tens of lakhs. The two arguments that work are that the levy is discretionary and that the default is technical, and both now have authority behind them.
The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it?
My closing stock is worth more than it cost me. Does the rise in value get taxed, and does it matter that the goods were lying outside the place where I trade?
The AO has taxed my advance licence and DEPB benefits in the year I exported. Is that the right year?
An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
A discretionary trust distributed income to me during the year and the trustees have already been assessed on it. Can the Assessing Officer also assess me?
Our family business is run entirely outside India, but two coparceners are partners in Indian firms with family money. Does that make the family resident in India?
I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
I credited commission in my books at the contracted rate but agreed during the year to take a lower rate. Am I taxed on the higher figure?
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