Indian Taxpayers Face New Foreign Asset Reporting Rules for AY 2026-2027

The Central Board of Direct Taxes (CBDT) issued two orders this month authorising the inclusion of information received from foreign jurisdictions under the automatic exchange of information (AEOI) framework in taxpayers' annual information statements (AIS) for the calendar years 2022, 2023, 2024, and 2025. The objective is to facilitate accurate reporting of foreign assets in Schedule FA.

As international information exchange expands, taxpayers should carefully evaluate their reporting obligations, particularly since several investment circumstances are not specifically addressed in the Schedule FA instructions and inaccurate disclosure may have significant consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Some of the key issues are discussed below.

Schedule FA reporting of foreign ESOPs: Does disclosure change across the ESOP lifecycle?

Foreign parent companies often grant employee stock option plans (ESOPs) or restricted stock units (RSUs) to employees of their Indian subsidiaries. While the tax implications at exercise and sale are generally understood, Schedule FA reporting across the grant, vesting, and exercise stages remains uncertain. The same is explained hereinunder:

Grant stage: At the grant, the employee merely receives an opportunity to acquire shares in the future, subject to specified conditions. Since no enforceable rights or ownership exists at this stage, the grant itself should ordinarily not constitute a reportable foreign asset.

Vesting Stage: The position becomes more nuanced at the vesting stage. Although the employee acquires the right to subscribe to shares, ownership is obtained only upon exercise. Accordingly, disclosure in Table B (Financial Interest in any Entity Outside India) would generally not be required.

However, vested options may themselves qualify as a capital asset where they embody transferable rights, particularly where the stock option plan permits buyback or nomination. Such vested rights may therefore be disclosed under Table D (Any Other Capital Asset).

Exercise stage: Upon exercise, the employee becomes the legal owner of the foreign shares and acquires a direct financial interest in a foreign entity. Accordingly, the shares should be reported in Table B from the year of acquisition till the year of sale/disposal.

Foreign shares held through overseas brokerage or custodial accounts

Resident taxpayers frequently hold foreign-listed shares through overseas brokerage or custodial accounts. This raises the question whether reporting the custodial account in Table A2 (Foreign Custodial Account) also covers the underlying investments, which are otherwise reported separately under Table B.

The two tables, viz., Table A2 and Table B, serve different purposes. Table A2 captures the custodial or brokerage account maintained with the foreign financial institution, including cash balances, investment proceeds, dividends, and related transactions. Table B requires disclosure of the taxpayer's financial interest in foreign companies, including acquisition cost and income.

Accordingly, taxpayers may consider reporting the custodial account in Table A2 and the underlying foreign shares separately in Table B. This would provide a complete picture of the taxpayer's foreign assets without duplication.

Jointly held overseas bank accounts

A common issue arises where foreign bank accounts are held jointly by spouses or family members. Taxpayers often assume that only the person to whom the income belongs is required to report the account.

However, where an individual is named as an account holder, disclosure in Table A1 (Foreign Depository Account) may still be required. The account balance and income should generally be reported based on the respective ownership of the funds. Thus, where one joint holder has merely been added for convenience without contributing any funds, such person may disclose the account while reporting under Schedule FA without attributing any income.

This issue assumes greater significance because under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), foreign financial institutions generally report the entire account balance against each joint holder without recognising internal ownership arrangements. Further, with the income tax department increasingly displaying foreign asset information on the compliance portal, taxpayers should ensure that Schedule FA reporting reflects the actual ownership of funds while using the feedback mechanism to explain any apparent mismatches.

Schedule FA reporting of cryptocurrencies: Is disclosure required?

The increasing adoption of cryptocurrencies and other virtual digital assets (VDAs) has given rise to an important question for resident taxpayers: whether crypto-assets are required to be disclosed in Schedule FA.

The issue assumes greater significance considering the OECD's Crypto-Asset Reporting Framework (CARF). Under CARF, crypto exchanges, brokers, and other intermediaries are required to collect and report information relating to account holders, including their identity, tax residence, tax identification number, transaction details, fair market value of crypto-assets and, in transfer cases, the destination wallet address. Consequently, information relating to crypto-assets held through overseas platforms is expected to become available to Indian tax authorities through international information-sharing arrangements from 1 April 2027.

Accordingly, cryptocurrencies held through overseas exchanges may be appropriately disclosed under Table D (Any Other Capital Asset), together with details of the overseas exchange and other relevant particulars. Similarly, where cryptocurrencies are held through foreign online wallets (such as MetaMask), taxpayers should consider disclosing the wallet along with the associated wallet service provider.

As cross-border investments continue to evolve, Schedule FA reporting often requires taxpayers to determine the appropriate reporting position in areas where no specific guidance exists. Given the significant consequences of non-disclosure or inaccurate disclosure, taxpayers should adopt a consistent and well-reasoned reporting approach and seek professional advice wherever the reporting position remains uncertain.