Mandatory Disclosures: Reporting Foreign ESPP Holdings on Schedule FA

Business Business: Since your employer disclosed exposure of income from the exercise of ESPP, you will own shares listed abroad. Therefore, you will have to disclose such shares in Schedule FA (foreign assets) of your income tax return. Any assets owned abroad by a resident (other than a not ordinarily resident, or NOR) must be disclosed in Schedule FA of the income tax return, irrespective of the value of such assets. Non-disclosure of foreign assets by a resident, other than a not ordinarily resident, will have penal consequences under the Black Money Act. Disclosure in Form 16 will not be considered as disclosure in income tax return, as Form 16 will only reflect the taxable income in the hands of the employee on exercise of the option, or purchase of shares. Further, Budget 2024 proposes that non-disclosure of assets in income tax return from October 1, 2024 will not attract penalty under the Black Money Act if the value of foreign assets (other than immovable property) does not exceed ₹20 lakh in aggregate.

Despite the proposed increase in the penalty limit under the Black Money Act, it is a good practice to disclose all foreign assets in Schedule FA. Further, if foreign assets have not been disclosed in the original return for AY25, you can file a revised return before 31 December 2024. Disclosures made in the revised return will also be considered as valid disclosure. Under Schedule FA, the resident taxpayer has to disclose foreign assets held during the calendar year, i.e., assets held during calendar year 2023 have to be disclosed in the return of AY25. If the shares were received during calendar year 2024, you have to disclose the shares in Schedule FA of the income tax return of AY26, even though the income will be taxable in the financial year in which the option was exercised.