Malaysia's participation in the Common Reporting Standard
Malaysia is a committed CRS jurisdiction, having begun its first automatic exchange of financial
account information in 2018. Because both India and Malaysia are established CRS participants, Indian
tax authorities receive periodic automatic data on Malaysian financial accounts held by Indian tax
residents, administered on the Malaysian side by the Inland Revenue Board (LHDN) and channelled through
the OECD's Common Reporting Standard framework rather than a bilateral arrangement between the two
countries alone. In practice this means account balances, interest and dividend income, and certain
other financial data reported by Malaysian banks and financial institutions to LHDN can flow through to
India's tax authorities without any separate request being made, which is one reason NRIs sometimes
assume -- incorrectly -- that every Malaysian account automatically becomes an Indian disclosure item the
moment it is reported this way.
Schedule FA and the Black Money Act -- who actually needs to worry
A common misconception among NRIs is that any foreign bank account or asset must be disclosed on an
Indian tax return. In fact, Schedule FA disclosure under the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015 applies only to taxpayers classified Resident and Ordinarily
Resident (R&OR) under Section 6 of the Income-tax Act -- not to Non-Residents, and generally not to
Resident-but-Not-Ordinarily-Resident (RNOR) taxpayers either. A genuine NRI in Malaysia, filing as a
non-resident for Indian tax purposes, has no Schedule FA obligation for Malaysian bank accounts, MM2H
fixed deposits, or other Malaysian assets, even though CRS data about those same accounts may still be
transmitted to Indian authorities in the background. This distinction between CRS reporting (which
happens regardless of residential status) and the Schedule FA disclosure obligation (which is tied
specifically to R&OR status) is one of the more frequently misunderstood points in NRI tax compliance,
and is worth confirming with a chartered accountant familiar with cross-border filings before assuming
either way.
When the compliance obligation actually starts
The Schedule FA obligation becomes live only if and when the NRI returns to India and, after the RNOR
transition period (roughly determined by the 2-of-10-years and 729-day tests under Section 6), crosses
into R&OR status. From that point, failing to disclose foreign assets -- including an MM2H fixed
deposit, Malaysian property, or shares in a Malaysian company -- can trigger penalties under the Black
Money Act, which can run substantially higher than penalties under the ordinary Income-tax Act given the
Act's specific focus on undisclosed foreign assets. NRIs planning to return to India permanently should
plan their Schedule FA compliance around this transition rather than treating it as an immediate concern
while still genuinely non-resident, and should ideally map out their Malaysian asset holdings and
residency timeline together with an adviser well before the R&OR threshold is actually crossed, since
retrofitting years of disclosure after the fact is considerably harder than filing correctly from the
first applicable year.
