Misreporting may invite penalty as high as Rs 10 lakh, can go up to 200 per cent of the tax due
The Income-Tax Act permits setting off of capital losses from overseas investments.
In April 2025, $2.5 billion flowed out of India under the Liberalised Remittance Scheme (LRS), with investment-related remittances surging around 105 per cent year-on-year. As the mutual fund route for overseas investments is frequently unavailable, many investors are using the LRS route. Such investors must ensure they file their income tax return (ITR) accurately.
Choose the right ITR form and schedules
Resident investors holding foreign assets or earning income from foreign securities must file ITR-2 or ITR-3. “Use ITR-2 if you do not have income from business or profession and ITR-3 form if you have income from those sources,” says Poorva Prakash, partner, Deloitte India.
All foreign assets, including securities, must be disclosed in Schedule FA (Foreign Assets). “Resident and Ordinarily Resident (ROR) individuals and Hindu Undivided Families (HUFs) must report under Schedule FA, irrespective of whether any income from such assets is taxable in India. Even dormant or low-value holdings must be declared,” says Abhishek Soni, co-founder, Tax2Win.
Income from foreign sources should be reported in Schedule FSI (Foreign Source Income). To claim tax relief, use Schedule TR (Tax Relief). Gains or losses from the sale of foreign securities go in Schedule CG (Capital Gains), while dividend, interest or other income should be reported in Schedule OS (Income from Other Sources).
If LRS remittances in a financial year exceed Rs 10 lakh, 20 per cent Tax Collected at Source (TCS) applies. “The details of such TCS must be reported in Schedule TCS of the tax return form to claim credit for it,” says Prakash.
Taxation rules for foreign securities
The rules for taxation of capital gains from foreign securities (including equities, mutual funds and exchange-traded funds) sold on or after July 23, 2024 have changed. “Securities held for 24 months or less are treated as short-term capital gains (STCG) and taxed at the individual’s applicable income tax slab. Those held for more than 24 months are taxed as long-term capital gains (LTCG) at 12.50 per cent (without indexation), plus cess and the applicable surcharge,” says Prakash.
There is no distinction between the taxation of listed and unlisted foreign securities. “However, foreign unlisted securities can raise valuation and disclosure complexities, especially under Schedule FA,” says Soni.
Avoiding double taxation
To prevent double taxation on income such as dividends or capital gains, investors can claim foreign tax credit (FTC) in India. India’s Double Taxation Avoidance Agreements (DTAAs) with various countries allow exemption or credit for taxes paid abroad. “To claim foreign tax credit, the investor must report the foreign income and taxes paid in their Indian ITR and also electronically furnish Form 67 on the income-tax e-filing portal,” says Prakash.
Soni notes that Form 67 must be filed by December 31, 2025, to claim this credit.
Setting off capital losses
The Income-Tax Act permits setting off of capital losses from overseas investments. “Losses from overseas equity investments are allowed to be set off against capital gains made in India,” says Vishwas Panjiar, partner, Nangia Andersen.
Short-term losses can be set off against both short- and long-term gains, while long-term losses can only be set off against long-term gains. “Unutilised capital losses can be carried forward for up to eight years, provided the return is filed within the due date (September 15, 2025 for FY 2024–25),” says Amit Baid, head of tax, BTG Advaya.
Penalties for non- or misreporting
ROR taxpayers must disclose foreign assets or income, including beneficial interests, in their tax return. “Penalty for non-reporting or misreporting of foreign assets/income attracts a fine of up to Rs. 10 lakh. It can also possibly result in prosecution proceedings under the Black Money law,” says Panjiar.
Filing revised or updated returns
Investors who omitted foreign asset and income disclosures can file a revised or updated return to avoid penalties. “The due date for filing revised return is December 31 of the financial year in which the original return is filed,” says Dipesh Jain, partner, Economic Laws Practice. For FY 2024–25, the revised return can be filed by December 31, 2025.
“An updated return can be filed within four years, but only if it results in higher income or reduced losses and attracts additional tax,” says Baid.
Common mistakes to avoid
Frequent errors by those who invest in foreign securities include omitting foreign income or assets in ITR, not claiming FTC, and failing to reconcile TCS.
One reason is that investors have to maintain their own records and file based on them. “Income from foreign assets is missed at times as such income streams are not captured in Form 26AS, Annual Information Statement (AIS) or Taxpayer Information Statement (TIS). Further, such incomes do not get pre-filled in the return of income,” says Jain.
Baid cautions against incorrect currency conversion and assuming DTAA benefits without proper documentation.
Documents needed to handle scrutiny
* TCS certificate
* Source of funds documentation for foreign investments
* LRS/ODI forms from authorised dealers
* SWIFT remittance proofs, authenticated bank statements showing foreign fund transfers
* RBI-based currency conversion records
* Investment proofs, trade reports, and portfolio summaries
* Contract notes and broker statements
* Explanation and justification for anywrite-offs on foreign investments
* Foreign tax documents (if tax was paid abroad)
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