Tax Disclosure requirements in ITR

Details of Foreign Assets held by Resident Individuals at any given point of the time during the year, have to be disclosed to Income Tax Department while filing their Income Tax Return. Details required to be disclosed is as follows:

S.NoNature of AssetDetails Required
1Foreign Depository Accounts / Foreign Custodian Account(a) Name of Financial Institution
(b) Address
(c) Account Number
(d) Account Opening Date
(e) Status (Owner/Beneficial Owner/ Beneficiary)
(f) Peak Balance
(g) Closing Balance
(h) Gross Interest Paid/ Credited during the year
(i) Nature of Account (for Custodian)
2Foreign Equity and Debt Instruments(a) Country Name
(b) Name of the Entity
(c) Address
(d) Nature of Entity
(e) Date of acquiring Interest
(f) Initial value of Investment
(g) Peak Value of Investment
(h) Closing Value
(i) Gross amount paid/credited with respect to holding period
(j)Total Gross Proceeds from sale or redemption during the period

Foreign Equity in Startup Investments

Unconventional Modes of Acquisition usually observed in Startups

  1. ESOPs By Foreign Holding Co to the Employees of its Indian Subsidiary
  2. As a process of Externalisation
  3. Demerger of Indian Entity, Where Consideration is given by Foreign Holding Company
  4. Amalgamation of Indian Entity with Foreign Entity
  5. Issues of Shares for Consideration other than Cash

“Currently, Externalization is a popular Non Conventional mode, through which Resident Indians (Both Founders and Investors)  are acquiring Foreign Equity”

Externalisation in Startups

A number of Startups are now looking to set up Foreign Holding Companies (“Externalisation”) on account of geographical expansion of business, comfort of international investors, IP Protection and international presence.

Externalisation results in Indian Founders and their existing investors acquiring shares of Foreign Holding Companies.

The process of Externalisation also requires detailed analysis from FEMA and Tax Law perspectives in addition to the overarching business need for such a restructuring activity.

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