ITAT Ruling Highlights Importance of Disclosing Foreign ESOPs in Income Tax Returns

Income Tax Tribunal Upholds Ruling on Technical Breach of Foreign ESOP Disclosure

In a recent decision, the Chennai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that an employee's failure to disclose foreign Employee Stock Option Plan (ESOP) shares was a technical breach with no intention to conceal foreign assets or evade taxes.

The bench, led by Vice President George George K, observed that despite the non-disclosure of the foreign ESOP income in the return of income for AY 2016-17, the employee had reported and paid tax on the capital gains when the shares were sold in AY 2019-20. The income from the asset had already been captured by the tax system.

The only lapse on the part of the assessee was the non-disclosure of the ESOP asset in Schedule FA of the return of income for AY 2016-17, which was filed on January 22, 2018. As a result, penalty proceedings under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 were initiated, and a penalty of Rs 10 lakh was levied.

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However, the ITAT ruled on April 1, 2026 that there was no material on record to suggest that the assessee had any intention to conceal foreign assets or evade taxes. The tribunal found that the conduct of the assessee reflected full disclosure of income and due payment of taxes, and therefore, the non-disclosure was a technical breach.

The ITAT ordered the tax commission to revoke the penalty of Rs 10 lakh slapped on the employee, underscoring the importance of properly reporting ESOPs in income tax returns, particularly for foreign holdings.

The case highlights the complexities of ESOP structures and the need for taxpayers to carefully evaluate and report foreign ESOPs to avoid any technical breaches.

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