FATCA & CRS Under Direct Tax Code 2025: A Guide for Tech Employees

Key Takeaways

• Unified Reporting Mandate: The Direct Tax Code (DTC) 2025 moves towards a unified and technology-driven compliance framework. It strengthens the existing automatic exchange of information under FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard), making non-disclosure of foreign assets like RSUs and ESOPs a traceable risk with severe consequences.
• Increased Scrutiny for Tech Employees: Global tech employees receiving equity compensation (RSUs, ESOPs) from foreign parent companies are a primary focus. The new code integrates data from foreign brokers and employers directly with income tax records, leaving no room for discrepancies in reporting perquisite taxation at vesting and capital gains at sale.
• Harsher Penalties, Limited Relief: While the penalty for non-disclosure remains stringent under the Black Money Act (up to ₹10 lakh per asset), the DTC 2025 codifies these provisions with fewer ambiguities. A proposed one-time disclosure scheme may offer a compliance reset for small taxpayers with minor, past non-disclosures.
• Mandatory Disclosure of All Foreign Assets: The requirement to disclose all foreign assets in Schedule FA of the income tax return is non-negotiable for all Resident and Ordinarily Resident (ROR) taxpayers. This includes vested RSUs not yet sold, dormant foreign bank accounts, and interests in foreign entities.

PART 1: EXECUTIVE SUMMARY

The transition from the Income Tax Act, 1961 to the proposed Direct Tax Code (DTC) 2025 marks a pivotal shift from an assessment-based regime to a data-driven, compliance-focused one. This guide analyzes the integration of global data-sharing agreements—FATCA and CRS—within this new framework, with a specific focus on Indian tech professionals who have global financial footprints.

• The Old Law (1961): Under the 1961 Act, India operationalized its commitment to the US FATCA and OECD's CRS through amendments, requiring financial institutions to report specified accounts. Taxpayers, in turn, were mandated to self-declare foreign assets and income in Schedule FA and Schedule FSI of their income tax returns. However, the enforcement was often reactive, relying on data mismatches flagged during assessments. This created compliance gaps, particularly for complex assets like employee stock options (ESOPs) and restricted stock units (RSUs).

• The New Law (2025): The Direct Tax Code 2025 is expected to make this data exchange seamless and proactive. The new code aims to consolidate and simplify tax laws, moving away from a complex web of sections to a more structured legislative framework. It will leverage technology to integrate the high-volume data received under FATCA and CRS directly into the taxpayer's profile and pre-filled return forms. The core change is the shift from taxpayer self-reporting as a primary check to a system where the tax department already possesses granular financial data from foreign jurisdictions, making verification swift and non-disclosure easily detectable.

• Who is Impacted: This change most significantly impacts Indian residents and ordinarily residents (ROR), particularly tech sector employees working for multinational corporations. This demographic frequently holds foreign assets such as brokerage accounts for RSUs/ESOPs, foreign bank accounts for salary credits, and other overseas investments. Under the DTC 2025, any mismatch between the information received via automatic exchange and the details declared in their income tax returns will trigger immediate scrutiny.

PART 2: DETAILED TAX ANALYSIS

1. The Challenge for Global Tech Employees

The modern tech professional's compensation is often globalized, creating complex cross-border tax obligations. An engineer working for a US-based tech giant's Indian subsidiary, for instance, typically receives RSUs of the US parent company, which vest over time and are managed through a US-based brokerage firm. This single element of compensation creates multiple reporting duties:

• Perquisite Income: At the time of vesting, the Fair Market Value (FMV) of the shares is taxed as salary income in India.
• Foreign Asset Reporting: Once vested, these shares become a foreign asset that must be reported annually in Schedule FA of the income tax return, even if they are not sold.
• Capital Gains: When these shares are eventually sold, the resulting profit is taxed as capital gains.
• Dividend Income: Any dividends received from these shares must be reported as income from other sources.

Under the 1961 Act, the onus was on the employee to collate data from various sources (employer, foreign broker) and report it correctly. Discrepancies were common due to confusion over exchange rates, reporting periods (Schedule FA uses a calendar year basis), and the distinction between disclosure and taxation. The DTC 2025's integrated data approach means tax authorities will receive this information directly from the source, making accurate and timely compliance indispensable.

2. Statutory Changes: 1961 Act vs 2025 Act

The DTC 2025 is expected to streamline the legislative framework governing foreign asset reporting. While specific section numbers are provisional until the final bill is enacted, the functional changes are anticipated to be significant.

3. Schedule FA & Foreign Asset Reporting

Schedule FA is the cornerstone of foreign asset compliance for resident taxpayers. It is not an assessment of tax but a mandatory disclosure statement. Failure to file it correctly is a primary trigger for penalties.

Key Reporting Requirements for Tech Employees:

• Table A1: Foreign Bank Accounts: All foreign bank accounts must be reported, including dormant or zero-balance accounts. The peak balance during the calendar year must be disclosed.
• Table A3: Foreign Equity and Debt Interest: This is the most critical table for tech employees. Vested RSUs and exercised ESOPs held in foreign brokerage accounts must be reported here. The peak value of the investment during the calendar year is required.
• Table D: Any other capital asset outside India: This is a residual category for assets not covered elsewhere.

Under the DTC 2025, the information required in Schedule FA is unlikely to decrease. Instead, the focus will be on data integrity. The tax department will cross-verify the taxpayer's declarations in Schedule FA against the data received automatically from the employee's foreign brokerage firm under CRS. Any mismatch in the number of shares held, value, or account details will be instantly flagged by the system.

4. Scenario Analysis

Case Study: A Global Tech Employee

• Profile: Anjali is a Resident and Ordinarily Resident of India, working as a Senior Software Developer for the Indian subsidiary of a US-based tech company.
• Assets:
  1. RSUs: She has 100 vested RSUs of her US parent company held in a brokerage account in the USA.
  2. Bank Account: She maintains a US bank account where dividends are credited.
  3. ESPP: She participates in the company's Employee Stock Purchase Plan (ESPP).

Compliance Actions under the DTC 2025 Framework (for AY 2026-27):

1. Data Exchange: Before Anjali even begins filing her return, the Indian tax authorities will have received the following data through the CRS/FATCA channels:

   • From the US brokerage: Details of her 100 RSUs, their value, and any sale transactions.
   • From the US bank: The closing balance, peak balance, and details of dividend credits.

2. Pre-filled ITR: When Anjali logs into the income tax portal, her ITR form will have pre-filled sections based on this data.

   • Schedule FA: Will show the US bank account and the brokerage account with the number of shares.
   • Schedule OS (Other Sources): Will show the gross dividend income reported by the US bank.

3. Anjali's Responsibility: Her task is no longer just data entry, but verification and supplementation:

   • She must verify the pre-filled data in Schedule FA is correct for the calendar year 2025.
   • She must calculate the perquisite value for any RSUs that vested during the financial year 2025-26 and ensure it is correctly reflected in her salary income (Schedule S).
   • If she sold any shares, she must calculate the capital gains and report them in Schedule CG, ensuring the cost basis aligns with the FMV previously taxed as a perquisite.
   • She must file Form 67 before filing her ITR to claim a credit for any taxes withheld in the US on the dividends.

4. Consequences of Non-Compliance: If Anjali ignores the pre-filled data or fails to report the capital gains from a sale, the system will detect the anomaly immediately, leading to an automated notice and potential penalties for misreporting income and non-disclosure of assets.

5. Compliance Checklist 2026

For the first filing season under the Direct Tax Code 2025 (Assessment Year 2026-27), global tech employees must adhere to a rigorous compliance checklist:

• Inventory of Global Assets: Create a master list of all foreign assets held during the calendar year 2025, including:

  • All foreign bank accounts (active and dormant).
  • Brokerage accounts with details of all vested RSUs, exercised ESOPs, and other securities.
  • Immovable property held abroad.
  • Any other financial interest in an entity outside India.

• Document Collation: Gather all relevant statements for the period of January 1, 2025, to December 31, 2025:

  • Foreign bank account statements to identify peak balance.
  • Brokerage account statements showing holdings, transactions, and dividend credits.
  • Grant letters and vesting schedules for all RSUs/ESOPs to identify vesting dates and calculate perquisite values.

• Reconcile with Pre-filled Data: Once the ITR forms for AY 2026-27 are available, carefully review the pre-filled information sourced from FATCA/CRS. Do not accept it blindly.

  • Cross-verify account numbers, number of shares, and dividend amounts.
  • Identify any gaps or assets that have not been pre-filled and add them manually.

• Accurate Income Reporting (Financial Year April 1, 2025 - March 31, 2026):

  • Correctly calculate perquisite value on vested RSUs/exercised ESOPs and report as salary.
  • Report all foreign-sourced income, such as dividends and interest, in Schedule OS.
  • Calculate and report capital gains on the sale of any foreign assets in Schedule CG.

• Claim Foreign Tax Credit (FTC):

  • For any foreign tax paid/withheld, file Form 67 on the e-filing portal before submitting the final income tax return. Failure to do so will result in the denial of the tax credit.

• Final Review and Filing: Before final submission, ensure that every asset listed in Schedule FA has its corresponding income (if any) reported in the relevant income schedules (e.g., Schedule OS, Schedule CG). This internal consistency check is vital to avoid automated scrutiny.

💡 Tech Employee Tip: Restructuring your salary or vesting RSUs? Understand the new capital gains rules for 2025.