'Trust First' compliance approach of govt leads to tax income of Rs 1,000 crore

A gentle nudge from the tax authorities has prompted taxpayers to declare foreign assets worth over Rs 29,000 crore.

Following an initiative by the Central Board of Direct Taxes (CBDT), over 24,000 taxpayers disclosed their foreign assets, yielding additional tax income of over Rs 1,000 crore, government sources revealed.

This has happened under the Common Reporting Standard (CRS), where financial data is shared among member countries. Under the CRS framework, over 125 countries, including the United States through the Foreign Account Tax Compliance Act (FATCA), share financial information of individuals linked to foreign jurisdictions. This exchange includes details such as account balances, interest, dividends, and gross payments.

Sources said in September 2024, India received financial information from 108 countries about foreign accounts and income earned abroad in the form of interest and dividends. The CBDT then launched a special compliance campaign in November last year to encourage taxpayers to declare their foreign assets and income in revised Income Tax Returns (ITRs) for Assessment Year (AY) 2024-25.

Government officials said 19,501 taxpayers identified with high foreign account balances or significant foreign income exceeding a set threshold were contacted through SMS messages and emails, urging them to revise their ITRs. In addition, outreach sessions and a social media campaign were initiated.

This gentle nudge from tax authorities seems to have worked wonders.

Officials stated, “24,678 taxpayers reviewed their ITRs, and 5,483 individuals filed belated returns for AY 2024-25, declaring foreign assets worth Rs 29,208 crore and additional foreign income of Rs 1,089.88 crore. Additionally, 6,734 taxpayers revised their residential status from Resident to Non-Resident. In total, approximately 62 per cent of contacted taxpayers voluntarily complied with the campaign.”

This was reflected in the overall figures, as the number of taxpayers disclosing foreign assets and income has risen sharply, increasing from 60,000 in AY 2021-22 to 2,31,452 in AY 2024-25. Compared to AY 2023-24, voluntary disclosures surged by 45.17 per cent owing to the “extensive outreach efforts.”

Government sources said the initiative was centred on a 'Trust First' approach, prioritising voluntary compliance over enforcement. Rather than resorting to immediate verification or intrusive measures, the government has relied on taxpayer cooperation, allowing individuals to correct their filings before formal verification proceedings begin.