Tax on foreign assets and the disclosure obligation

Five chapters have been about getting money abroad and what it does there. This one is about the obligations that attach to it afterwards, which are heavier than the investment itself usually warrants.

Two separate duties

The duty to pay tax arises from income and gains. No income, no tax.

The duty to report arises from holding the asset. It does not depend on income, on gains, on size, or on anything having happened at all.

Confusing the two is the mistake that causes trouble, because the second one is easy to overlook precisely when it feels least relevant — a small holding, sitting at a loss, that nobody sold anything from.

What the RBI requires

The overseas investment framework has its own reporting, separate from tax.

The general obligation, stated directly: "A resident individual making overseas investment must comply with the reporting requirements as provided under the OI Regulations and reporting shall also be done as provided under the LRS where such investment is reckoned towards the LRS limit."

So an LRS-funded foreign holding is reported twice over — once as a remittance, once as an investment.

An Annual Performance Report may be required, and the requirement reaches individuals specifically: the APR "shall be certified by a chartered accountant where the statutory audit is not applicable, including in case of resident individuals."

That phrase is worth noticing. The framework anticipates individuals holding foreign investments and requires a professional certification rather than a self-declaration.

Forms differ by route. For shares acquired under an employee stock plan that qualify as OPI, "the necessary reporting in Form OPI shall be done by the employer concerned"; where the holding qualifies instead as ODI, "the resident individual concerned shall report the transaction in Form FC."

So for an ESOP the employer files, for the OPI leg. That is convenient and it is also a trap: an employee may assume all their obligations are handled because one of them is.

The mechanics from chapter 3 continue to apply — a designated Authorised Dealer branch through which all LRS remittances are made, and Form A2 for each purchase of foreign exchange.

Two exemptions worth knowing

Inheritance and gifts do not consume the allowance. "Acquisition of foreign securities by way of inheritance or gift in accordance with paragraph 2 of Schedule III of OI Rules shall not be reckoned towards the LRS limit and hence, shall not require reporting under LRS."

That is an LRS exemption, not a general one. The holding still exists, and the tax-side disclosure obligation below is unaffected by how it was acquired.

And two things an individual may not do, both easy to stumble into:

No gifting overseas investments abroad. "Resident individuals are not permitted to transfer any overseas investment by way of gift to a person resident outside India."

No lending abroad as a financial commitment. "A resident individual shall not make financial commitment by way of debt" — so funding a foreign venture by loan rather than equity is closed, even where the equity route is open.

What the income-tax side requires

A note on how this chapter handles rates. This course states a rule or a number only where it cites a primary document actually read, and I was not able to read a current primary source setting out the foreign-asset schedules and rates under the Income-tax Act 2025. So this section describes the structure of the obligation and sends you to the Act and the return forms for the figures. The Tax subject takes the same position for the same reason.

The structure, which is stable across the change of Act:

Residents are taxed on worldwide income. A resident of India pays Indian tax on income arising anywhere, so dividends from a foreign share and gains on selling it are within Indian tax whether or not the money ever comes home.

Gains fall under capital gains. The e-filing portal confirms that "any profit or gain arising from transfer of a capital asset during the year is charged to tax under the head capital gains", and that the Income-tax Act 2025 retains the head. The Tax subject's chapter on capital gains is where the mechanics live.

Foreign tax may already have been deducted. Dividends from a foreign company are commonly taxed at source in that country. Relief from being taxed twice comes through the relevant double taxation avoidance agreement, and claiming it is a filing step rather than something automatic.

And the return requires foreign assets to be disclosed separately. The Indian return has long required a resident to schedule out foreign assets and foreign income — holdings, accounts, and interests — as a distinct reporting obligation rather than as part of the income computation.

The feature that makes this different from ordinary tax reporting: the disclosure attaches to the asset, not to the income. A foreign holding that paid nothing, gained nothing and was never sold is still a foreign asset to be disclosed, and the consequences of not disclosing are of a different order from an ordinary under-reporting of income. That asymmetry is the practical content of this chapter.

Why this changes the route decision

Chapter 4 compared three routes and left this chapter to supply the last column.

	Indian international fund	Direct foreign holding
Foreign asset held by you	No	Yes
LRS remittance reporting	No	Yes
OI Regulations reporting	No	Yes
Foreign-asset disclosure in your return	No	Yes
Foreign tax credit to claim	No	Possibly

An Indian fund that invests overseas gives you an Indian asset. You hold units of an Indian mutual fund; the fund holds the foreign securities. None of this chapter's obligations attach to you.

That is a real and recurring annual saving, and for a modest allocation it can outweigh everything else in chapter 4's comparison. The economic exposure is nearly the same; the compliance is not comparable.

The direct route earns its compliance burden only when it is doing something the fund route cannot — specific securities, breadth, or a holding large enough that the fixed annual cost is immaterial.

Working the problem

40 shares of a foreign company, about ₹3 lakh, from an employee stock plan four years ago, never sold, currently at a loss.

What is owed in tax: probably nothing this year. Nothing was sold, so no capital gain arises. If the shares pay a dividend, that dividend is taxable in India as foreign income, with credit for any tax withheld abroad.

What must nonetheless be done, every year:

Disclose the holding in the income-tax return. This is the obligation that does not care about the loss. A resident holding a foreign asset reports it, in the return's foreign-asset schedule, whatever its value and whatever it earned.

Report any dividend as foreign income, and claim treaty relief for foreign tax deducted if applicable.

Keep the RBI-side reporting in order. The acquisition under an employee stock plan qualifies as OPI where it is up to 10% of paid-up capital without control, and in that case Form OPI is filed by the employer. Confirm the employer actually did it rather than assuming — the obligation is attributed to them, and its absence is still a defect in your position.

Track the rupee cost of each tranche. The shares were acquired at a rate that is not today's rate, and chapter 2's decomposition is not optional at the point of sale — the gain will be computed in rupees, so the exchange rate on the acquisition date is part of the cost base. Four years of an employee plan may be four or more different acquisition dates and rates. Reconstructing this later is unpleasant; recording it as it happens is trivial.

What would make the obligation disappear — and the answer is short.

Selling the holding ends it, prospectively. Once you no longer hold the asset at any point in the reporting year, there is nothing to disclose for later years — though the year of sale must still be reported, along with the gain or loss.

Ceasing to be a resident of India ends it. The obligation attaches to residents. This is a change of circumstance, not a planning step.

And nothing else does. Specifically, none of these help:

Not the loss. Disclosure is independent of profit.

Not the small size. There is no threshold below which a foreign asset stops being a foreign asset.

Not the fact that the employer gave it to you. The acquisition route changes who files the RBI form, and it does not change your own disclosure.

Not the money never having left India. An ESOP grant does not use the LRS limit, and the resulting holding is still a foreign asset.

The honest summary of this subject's last chapter. Foreign investing is well worth doing for an Indian portfolio — chapter 2's correlation argument is the strongest reason, and chapter 5 says to keep it unhedged. But holding foreign assets personally brings an annual obligation that is disproportionate to a small allocation, and the fund route in chapter 4 delivers most of the benefit with none of it. Choose the direct route deliberately, knowing what it costs every year, rather than drifting into it because a foreign brokerage account was easy to open.

The point

The duty to pay tax follows income; the duty to report follows the holding, and only the second applies to an asset that is small, loss-making and untouched. On the RBI side, a resident individual making overseas investment reports under both the OI Regulations and the LRS, may need an Annual Performance Report certified by a chartered accountant, and relies on the employer to file Form OPI for employee-plan shares. Inheritance and gift acquisitions escape the LRS limit and its reporting, but not the tax-side disclosure. Residents are taxed on worldwide income, gains fall under capital gains, foreign withholding is relieved by treaty, and the return requires foreign assets to be scheduled separately — an obligation ended only by ceasing to hold the asset or ceasing to be resident. Because an Indian fund investing overseas leaves you holding an Indian asset, none of this attaches to that route, which is the last and often the deciding column in the comparison.