I worked for a few years in the USA, where my employer provided the 401(k) account. Now, I am a resident Indian. However, I still maintain that account and want to know whether I have to declare this in my income tax returns (ITR)?
—Name withheld on request
Based on the limited information provided by you, it is presumed that you are an Indian citizen and qualify as Resident and Ordinarily Resident and thus you are required to disclose the details (in ITR-2) of all your foreign assets.
Foreign Assets (‘FA’) schedule in the ITR form seeks to incorporate the details of assets which a taxpayer holds outside India. In the absence of any specific guidelines qua asset, whether an asset is to be included or not will need to be evaluated basis the nature and vesting of the asset, wordings and description in the schedule and the limited instructions/ guidelines in this regard.
It is assumed that the 401(K) account is a personal pension account in the US in which both the employer and employee contribute during the period of service. It would be prudent to disclose the details of the 401(K) account in the FA schedule.
With respect to the specific section of the FA schedule under which it should be disclosed, it would depend upon the exact nature of the 401K account, which will need to be evaluated. In case of the nature of account does not fall into any specific category, one may consider reporting it under the residual section D —’Any other Capital asset” (as per the ITR-2 form applicable for financial year 2021-22).
I had invested in an unsecured fixed deposit (FD) scheme of a company. In 2018, the company stopped paying interest and did not return the principal amount to depositors. After litigation under the Negotiable Instrument Act, the company agreed to pay me the principal without any interest for the period of the original deposit or the subsequent default period —all for a total of about 4 years. Can I claim any benefit as ‘long term capital loss’ for the period in which I lost interest on my deposit amount while filing my income tax return? The settlement was made during the current financial year and the repayments are being made in monthly installments.
—Name withheld on request
Based on the information provided by you, it is assumed that, as no interest was paid to you for the default period, no corresponding income was also offered to tax by you. In such a case, this may only be construed as non-realization of a potential income, which may however not be considered as a loss for tax purposes, even though it may be so in an economic sense. Also, such loss has not arisen from the transfer of the fixed deposit, since the principal amount itself is being fully repaid to you. Hence, subject to a review of the underlying deposit scheme and terms of the negotiated settlement, a capital loss may not be available in this case.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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