July 26, 2025

NRI Alert: Did You Receive a Foreign Asset Disclosure Notice from the Income Tax Department?

Why Are NRIs Getting Foreign Asset Notices from the Indian Income Tax Department?

If you're a Non-Resident Indian (NRI) and recently received a message or email from the Income Tax Department that mentions foreign assets, income from foreign sources, or filling Schedule FA and FSI, you are not alone.

Here's what the message typically looks like:

“Dear Taxpayer XXXX XXXX (PAN XXXXXX),
As part of ongoing global efforts to ensure compliance with tax regulations, India receives information concerning foreign assets and income such as bank accounts, interest, dividends, etc. If you hold any foreign assets or have income from foreign sources during FY 2024-25 relevant to AY 2025-26, then please choose the appropriate return form and fill Schedule FA/FSI...”

This automated tax notice is being sent out as part of India's compliance with the OECD's Common Reporting Standard (CRS) and FEMA monitoring, and in many cases, it's happening because NRIs are incorrectly filing tax returns as Residents in India or holding non-compliant bank accounts.

What is the Income Tax Department Tracking?

Thanks to the Global Automatic Exchange of Information (AEOI) framework and CRS, India now receives annual information from over 100 countries on:

Foreign Bank Accounts held by Indian residents
Dividends, Interest, and other foreign source income
Assets held overseas like real estate, investments, stocks, and mutual funds

If your return indicates you are a Resident, but foreign income or assets are reported via CRS, it creates a compliance mismatch.

Most Common Mistake: NRIs Filing ITR as Residents in India

Thousands of NRIs are unknowingly filing Income Tax Returns in India using ITR-1 or ITR-2 as Residents, due to one or more of the following reasons:

PAN is tagged as Resident with no KYC update
Holding a Resident Savings Bank Account (instead of NRO/NRE)
Consulting a local CA unfamiliar with NRI taxation rules

This leads to:

Income tax notice for foreign asset disclosure
Mandatory Schedule FA and Schedule FSI requirements
Legal liability under Black Money Act, FEMA, and Income Tax Act

Who Qualifies as NRI for Income Tax Purposes in India?

As per Section 6 of the Income Tax Act, you are treated as an NRI (Non-Resident) for a financial year if:

You were in India for less than 182 days during the financial year OR
You were in India for less than 60 days in that year and less than 365 days in the previous 4 years

Remember: Your passport or visa is not proof of NRI status. Only physical presence in India matters under Indian tax law.

Why Holding a Resident Savings Account as NRI is a Red Flag

Under FEMA (Foreign Exchange Management Act), NRIs are not allowed to operate resident savings bank accounts.

They are only allowed to hold:

NRO (Non-Resident Ordinary) Account – for income from Indian sources like rent, dividends, pension

NRE (Non-Resident External) Account – for foreign income, fully repatriable

If you continue using a resident savings account, you are:

Violating FEMA norms
At risk of tax misclassification as a Resident
Likely to receive a foreign asset disclosure notice even if you are not required to file Schedule FA

Understanding Schedule FA and Schedule FSI in ITR

Schedule	Purpose	Applicable To
Schedule FA	Report foreign assets: bank accounts, stocks, real estate abroad	Only for Resident taxpayers
Schedule FSI	Report foreign income: interest, salary, rent from outside India	Only for Resident taxpayers

NRIs should not fill these schedules. If you receive a notice asking you to do so, it means your return is incorrectly filed as a Resident.

How to Correct the Situation: NRI Tax Compliance Checklist

Determine Your Residential Status (for FY 2024-25):
Use the 182-day and 60/365-day rules to confirm if you qualify as an NRI.

Use the Correct ITR Form for NRI:
Typically, ITR-2 is applicable for NRIs. Avoid using ITR-1/ITR-4 unless advised by a qualified NRI tax consultant.

Do NOT Fill Schedule FA/FSI If You Are NRI:
These apply only to Resident Indians. Incorrect filling can create unnecessary compliance issues.

Update PAN KYC and Bank Details:
Make sure your PAN is correctly tagged as NRI. Also update KYC with banks and convert any resident bank account to NRO/NRE immediately.

Consult NRI Tax Experts:
Avoid DIY filings or general CAs who may not be aware of FEMA rules, CRS, DTAA, and NRI exemptions.

Penalties for Non-Compliance

If you wrongly file as Resident and do not report your foreign assets, or if you report them incorrectly, you could face:

₹10,00,000 penalty per foreign asset under the Black Money Act
Investigation under FEMA for unauthorised foreign holdings
Scrutiny and reassessment under the Income Tax Act

Dinesh Aarjav & Associates: Your Trusted NRI Tax Advisors

With over 25 years of experience in NRI taxation, FEMA compliance, global investments, and DTAA matters, we help NRIs across the globe:

File accurate ITRs using the correct residential status
Rectify misfiled returns and reply to notices
Regularize FEMA and bank account compliance
Avoid penalties by proactive and correct tax planning

Final Word: Got a Foreign Asset Notice? Don’t Ignore It.

Receiving an Income Tax notice for foreign asset disclosure can be stressful — but it’s usually because of incorrect NRI classification or outdated bank/KYC information.

Fixing it now can save you from severe penalties later.

Contact Us for NRI Tax Filing Support