Usual ITR Mistake by Self-Filers: Foreign Assets and the Wrong Return Form

A growing number of salaried taxpayers and professionals are receiving compliance emails, system nudges, and in some cases notices — not because they concealed income, but because they selected the wrong Income-tax Return form.

The mistake is deceptively simple: filing ITR-1 (Sahaj) despite owning foreign assets.

Why This Happens So Often

Most self-filers associate foreign disclosure only with foreign income. The common assumption is: “I did not sell anything, I earned nothing abroad — so there is nothing to report.”

Unfortunately, the Income-tax Act and the ITR framework do not work on assumptions. They operate on mandatory disclosure triggers.

The Legal Position (Clear and Non-Negotiable)

The Income-tax Return forms prescribe a specific disclosure schedule called Schedule FA (Foreign Assets).

This schedule requires disclosure of:

• Foreign equity and debt holdings
• ESOPs and RSUs issued by foreign companies
• Foreign bank and brokerage accounts, even if dormant
• Foreign mutual funds, trusts, or financial interests

ITR-1 does not contain Schedule FA. Therefore, any taxpayer required to disclose foreign assets cannot legally file ITR-1.

In such cases, the correct return form is generally ITR-2, even if:

• No foreign income was earned
• No foreign asset was sold
• No capital gains arose during the year

Common Foreign Assets That Trigger ITR-2

• ESOPs or RSUs granted by a foreign employer
• Foreign listed shares or ETFs held through overseas brokers
• Overseas bank accounts opened during employment or education
• ADR or GDR holdings
• Foreign pension or retirement accounts

Why the Department Is Picking Up These Cases Now

The Income-tax Department receives extensive data under international information-exchange frameworks such as CRS and FATCA.

This data is algorithmically matched with:

• The ITR form selected
• Presence or absence of Schedule FA
• Disclosure of foreign income, if any

Where foreign asset information exists but the return is filed in ITR-1, the case is automatically flagged for compliance verification.

Many taxpayers are currently being prompted to revise their returns voluntarily before escalation to scrutiny or reassessment proceedings.

Action Required: What You Should Do Immediately

1. Review whether you owned any foreign asset during FY 2025–26
2. If yes, log in to the Income-tax portal
3. File a Revised Return using ITR-2
4. Correctly complete Schedule FA with accurate asset details

The revised return must be filed within the time limit prescribed under section 139(5) to avoid additional exposure.