On September 29, 2021, during an income tax raid at Mr. Prashant’s home, the income tax department discovered several assets, including foreign currency cash, gold and more. In due course, Prashant received tax notices, and his assets were seized including the gold and Rs 5.6 lakh in foreign currency, among other things.
Prashant deemed this seizure as unlawful and appealed to the Commissioner of Appeals (CIT A) against the income tax department. The CIT (A) ruled in his favour, but then the income tax department appealed to the Income Tax Appellate Tribunal (ITAT) Mumbai. On October 28, 2025, Mr. Prashant won the case in ITAT Mumbai. He was represented by Mr Nishit Gandhi and Ms.Adnya Bhandari.
To give you quick overview, Prashant filed his ITR for Assessment Year 2022-23 on November 5, 2022, declaring a total income of Rs 3.87 crore comprising income from house property, business, capital gains, and other sources.
ITAT Mumbai analyses the income addition namely foreign currency
The ITAT Mumbai in a ruling dated October 28, 2025 said that they would look into the issue regarding the foreign currency worth Rs 5,61,261 found during the raid, which the Assessing Officer had classified as unexplained under Section 69A.
The assessee (Prashant) clarified that the foreign currency was legitimately accumulated from various foreign trips taken by him and his family over the years.
He also provided supporting documents like bank statements, foreign exchange purchase bills issued by authorised dealers, passport entries showing international travel, and records of expenses incurred abroad.
Additionally, he mentioned that his daughter was studying abroad and that his wife had also travelled abroad during that period, which justifyied holding onto some foreign currency.
Nevertheless, the Assessing Officer rejected this explanation on the narrow ground that the purchase receipts were dated earlier and therefore, in his view, could not be linked to the currency found during search. However, he did not challenge the authenticity of the documents or the fact that the purchases were made through authorised channels.
Upon thorough review, the CIT(A) determined that the foreign currency was indeed acquired through banking channels from authorised dealers between January 2018 and August 2021, and that the purchases were duly recorded, and that the assessee (Prashant) and his family were frequent international travellers.
The CIT (A) concluded that keeping the currency was perfectly natural and should not be treated as unexplained merely because it had not been reconverted into Indian rupees immediately upon return. Accordingly, the addition was removed from his (Prashant’s) total income.
ITAT Mumbai said that after reviewing the evidence, they found themselves in complete agreement with the CIT(A).
The assessee (Prashant) substantiated the purchase of foreign exchange with credible documentation. His explanation fits squarely within the probabilities of normal human conduct. It’s just not realistic to think that a taxpayer should cash in every dollar or euro as soon as they return; that goes against what most people experience.
ITAT Mumbai said: “So long as the initial acquisition of the currency stands proved, the mere fact of physical possession at a later point cannot attract the mischief of section 69A.”
ITAT Mumbai judgment: “In the absence of any evidence to show that the foreign currency represented an undisclosed source or transaction, the deletion by the CIT(A) is perfectly justified. The addition made by the Assessing Officer was founded not on facts but on assumption and therefore cannot be sustained.”
As per Income Tax and FEMA law, how much foreign currency can Indians keep as cash at home and for how long?
Riaz Thingna, Partner, Grant Thornton Bharat, said to ET Wealth Online that there are no specific provisions under the Income-tax Act for retaining foreign currency at home.
According to Thingna, the only provisions that would apply to foreign currency found at home would be covered under Section 69A, which deals with unexplained credits.
Thingna says: “Therefore, if an assessee is able to demonstrate the source from which the foreign currency was acquired, then no addition is sustainable under the Income-tax Act.”
According to Thingna, under Foreign Exchange Management Act (FEMA) regulations, a resident Indian can legally retain foreign currency notes, bank notes, and traveller’s cheques up to USD 2,000 without any time limit.
Thingna says that it is interesting to note that there is no limit on retaining foreign coins.
According to Thingna, any received/realised/unspent/unused foreign exchange amount more than USD 2,000 should be surrendered to an authorised person within 180 days from the date of such receipt/realisation/purchase/acquisition or date of his return to India.
Thingna says: “Failure to do so, may attract penalties under FEMA. For amounts less than USD 2,000, there is no requirement to encash or surrender.”
According to Chartered Accountant (Dr.) Suresh Surana, as per Regulation 3 of the FEMA (Possession and Retention of Foreign Currency) Regulations, 2015, an Indian resident is permitted to retain foreign currency notes and coins up to USD 2,000 or its equivalent in any other currency. This amount may be held indefinitely, without any obligation to surrender it to an authorised dealer.
Surana says that Regulation 4 provides that foreign currency acquired during overseas travel may also be retained for future trips, and there is no statutory time limit within which such currency must be reconverted into Indian rupees. However, amounts in excess of USD 2,000, if held, are required to be deposited into a Resident Foreign Currency (RFC) account or surrendered to an authorised dealer within a reasonable period.
How to file ITR if you have foreign currency?
According to Thingna, Schedule FA (Foreign Assets) applies only to foreign bank accounts, investments, property, or financial interests outside India. Physical foreign currency notes kept in India within FEMA limits would not be considered as a foreign asset and therefore would not require any disclosure in Schedule FA.
However, if the total income of the person is more than Rs. 1 crore, they are required to fill Schedule AL in the Income tax return form.
Thingna says: “Schedule AL requires you to furnish all your domestic as well as overseas assets and liabilities, which inter-alia includes, cash-in-hand. Therefore, such foreign currency if held in India would have to be disclosed in Schedule AL by taxpayers whose total income is Rs 1 crore.”
Surana agrees with Thingna and adds that mere possession of foreign currency notes or coins legitimately acquired and lawfully retained under FEMA does not trigger any reporting requirement in the Income-tax Return, including Schedule FA – Details of Foreign Assets and Income from any source outside India.
Schedule FA is applicable only for reporting foreign assets held outside India, such as foreign bank accounts, foreign financial interests, immovable property abroad, foreign trusts, or signing authority in overseas accounts.
Surana says: “Physical foreign currency kept in India, even if accumulated over multiple overseas trips, is not a “foreign asset located outside India”, and therefore does not fall within the scope of Schedule FA.”
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