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The key takeaway for NRIs is awareness. Residential status can change frequently, and with it, tax and disclosure obligations. Regular review of filings, especially during ROR years, and seeking informed professional advice can help avoid unnecessary stress
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The Rs 10 lakh penalty exists to deter deliberate evasion—not to punish honest errors corrected in time
PRAVASISAMWAD.COM
An online query by a Non-Resident Indian (NRI) has recently sparked anxiety among many in the global Indian community, particularly those who have frequently changed their residential status for tax purposes. The concern centres on whether failing to disclose foreign assets during certain resident years can automatically attract a hefty Rs 10 lakh penalty under Indian tax laws.
The individual who raised the issue explained that he lived abroad as an NRI for a decade, returned to India for four years, and has now moved overseas again. During his return phase, he was classified as Resident but Not Ordinarily Resident (RNOR) for two years, followed by Resident and Ordinarily Resident (ROR) for the next two. The problem arose because, during his ROR years, his income tax returns did not include details of his foreign assets—an omission he claims happened due to lack of guidance from his chartered accountant.
To understand the issue, it is essential to revisit India’s residential status rules. An NRI is taxed only on income earned or received in India. An RNOR, typically someone who has recently returned after a long stay abroad, enjoys partial relief, as foreign income and assets are largely outside the Indian tax net. However, an ROR is fully taxable in India on global income and is mandatorily required to disclose overseas financial interests and assets in Schedule FA of the income tax return.
The fear stems from provisions under the Black Money (Undisclosed Foreign Income and Assets) Act, which prescribe a penalty of Rs 10 lakh for non-disclosure of foreign assets. However, tax experts stress that this penalty is not automatic
A report in financialexpress.com quoted Tax expert Dinkar Sharma, Company Secretary and Partner at Jotwani Associates, who advises to keep calm. According to him, such cases require careful review rather than panic. The law distinguishes between wilful concealment and genuine oversight. If foreign assets were acquired from explained sources and the omission was inadvertent, taxpayers may not face harsh consequences.
Importantly, the option of filing an Updated Return (ITR-U) provides relief. NRIs and residents who realise a genuine mistake can voluntarily correct their returns by disclosing omitted information and paying any additional tax and interest, if applicable. Proactive compliance often works in the taxpayer’s favour and significantly reduces litigation risk.
