Foreign Assets Of Small Taxpayers Disclosure Scheme, 2026

Legislative Background

• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘BMA’) was enacted to tax the undisclosed foreign income and assets held by the resident taxpayers. In case of any default in reporting foreign income or foreign assets in the return of income, the BMA provides for stringent consequences, including levy of tax, interest and penalties.
• At the time of its introduction, a one-time compliance window was provided from July 2015 to September 2015 (‘2015 Scheme’), enabling taxpayers to voluntarily declare undisclosed foreign assets acquired up to 31 March 2015, subject to payment of tax at 30% and penalty equal to 100% of such tax.
• The Government has since observed a significant number of reporting defaults and instances of non-disclosure of foreign assets, particularly in cases involving small taxpayers.
• To facilitate voluntary compliance by such small taxpayers, the Finance Act, 2026 introduced the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (‘the Scheme’), under Chapter IV, sections 130 to 144, as a one-time window for small taxpayers to voluntarily disclose specified undisclosed foreign assets, undisclosed foreign income, or certain undeclared foreign assets, on payment of the prescribed tax, penalty or fee. The Scheme applies in respect of income or assets declared for the previous year ending on 31 March 2026 or any earlier previous year and shall come into force from such date as may be notified by the Central Government in the Official Gazette.
• Pursuant to the enactment of the Finance Act, 2026, the Central Board of Direct Taxes has notified the Scheme on 14 August 2026 and issued the Foreign Assets of Small Taxpayers- Disclosure Scheme Rules, 2026 (‘the Rules’) vide Notification No. 114/2026/F. No. 370142/18/2026-TPL dated 14 August 2026. The Rules prescribe the valuation methodology, forms, filing procedure, payment timelines and administrative framework for implementing the Scheme.
• Further, Frequently Asked Questions (‘FAQs’) have also been issued to clarify the scope, eligibility, valuation mechanism, filing process, payment obligations, effect of valid declaration and exclusions from the Scheme.

Key features of the Scheme with Rules and FAQs are set out below:

Eligibility

• The Scheme is available to an assessee who is either:
  • resident in India in the relevant previous year under section 6 of the Income-tax Act, 1961 (‘the Act’); or
  • non-resident or not-ordinarily residents (‘RNOR’) under section 6(6) of the Act, provided such person was resident in India either in the year to which the undisclosed foreign income relates or in the year in which the undisclosed foreign asset was acquired.
• Under this Scheme, assessee can file declaration in respect of any foreign income or foreign asset where:
  • No return of income was filed under section 139 the Act; or
  • A return was filed before the Scheme, but foreign income or assets were not disclosed; or
  • Such income or asset escaped assessment under section 147 of the Act.

Non-applicability of the Scheme

The Scheme will not apply to:

• Income or assets which directly or indirectly represent proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002;
• income or assets relating to an assessment year for which assessment proceedings have already been completed under the BMA.

Amount payable by the Assessee

Key Dates

• The Scheme comes into force from 16 August 2026. The last date for filing a declaration is 31 December 2026, and no declaration can be filed after this date.
• For valuation purposes, the relevant valuation date is 31 March 2026. Accordingly, the fair market value of foreign assets proposed to be declared under the Scheme is required to be computed as on this date.

Prescribed authority and electronic filing

• The Rules prescribe that the Scheme will be administered electronically by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be. The entire declaration, verification, payment intimation and certification process is to be carried out electronically.

Valuation Rules

• The Rules prescribe detailed valuation methods for different classes of foreign assets.
• As a general principle, the fair market value is to be taken as the higher of:
  1. cost of acquisition and
  2. the open market price as on the valuation date, supported by a valuation report from a valuer recognised by the government or agency of the relevant foreign jurisdiction, wherever applicable.
• Where valuation is not carried out as per the prescribed method, the indexed cost of acquisition is deemed to be the fair market value. Specific rules are prescribed for valuation of bullion, jewellery, precious stones, artistic works, quoted shares and securities, unquoted equity shares, unquoted securities, immovable property, foreign bank accounts, interests in foreign partnerships/AOPs/LLPs and other residuary assets.
• For a foreign bank account, the value is generally the sum of all deposits made into the account from the date of opening up to the valuation date. However, deposits made out of withdrawals from the same account are excluded to avoid double counting.
• The Rules also provide that if the foreign bank account was earlier declared under Chapter VI of the BMA, only deposits made after the date of such earlier declaration are to be considered for valuation.

Valuation Variance

• The Rules provide a limited protection in case of valuation variance.
• For assets other than bank accounts, if the fair market value declared in Form 1 differs from the value later determined by the Assessing Officer or other income-tax authority, the declaration will not be treated as invalid merely on account of such difference, provided the variance does not exceed 20% of the declared fair market value.

Currency Conversion

• The Rules and FAQs clarify that all values are to be reported in Indian Rupees.
• Where the value is expressed in a permitted currency designated by the RBI under the Foreign Exchange Management (Deposit) Regulations, 2016, conversion into INR is to be made at the RBI reference rate on the valuation date.
• Where the asset value is in any other currency, it must first be converted into USD based on the rate specified by the central bank, or another regulated bank, of the country where the asset is located, and thereafter converted into INR using the RBI reference rate on the valuation date.

Forms

The Rules prescribe the following forms-

• Form 1: Declaration of foreign asset or income by the declarant;
• Form 2: Order by the income-tax authority determining the amount payable;
• Form 3: Intimation of payment by the declarant, along with proof of payment; and
• Form 4: Order certifying validity of declaration and payment.

Timelines

• After Form 1 is filed and electronically verified, the income-tax authority will issue an order in Form 2 within 1 month from the end of the month in which the declaration is made.
• The declarant must make payment within 2 months from the end of the month in which the Form 2 order is received. If payment is delayed, a further period of up to 2 months is available, subject to simple interest at 1% per month or part thereof on the amount due.
• If the payment is not made within the maximum permissible period (viz. 4 months), the benefit of the Scheme will cease to be available.
• Once payment is made, the declarant must submit Form 3 electronically along with proof of payment.
• The income-tax authority will thereafter issue Form 4 certifying the validity of the declaration and payment within 1 month from the end of the month in which Form 3 is received.

Immunity from initiation of proceedings

• The income or the amount of investment in an asset, which has been declared and appropriately paid under the Scheme shall not be included in the total income of the declarant for any assessment year under the Act or the BMA.
• Where a valid declaration is made under the Scheme and the prescribed amount is duly paid, the assessee shall be entitled to immunity from further tax, penalty and prosecution under the BMA in respect of the income or asset disclosed.

Others

• Where a declaration of any income or asset is made under this Scheme and assessment proceedings under the Act or the BMA are pending in respect of such income or assets, the Assessing Officer shall take such declaration into account while finalising such assessment order.
• In respect of income or asset declared, no rectification or revision under BMA shall be allowed and assessee shall not claim any set-off in any appeal shall be available in respect of declared asset / income or any amount paid under the Scheme. Additionally, no refund can be claimed after payment of the amount under the Scheme.

AURTUS COMMENTS

• The Scheme is broadly similar to 2015 Scheme, with its applicability limited to small taxpayers.
• It provides an opportunity to the eligible taxpayers to regularize defaults relating to reporting of foreign asset/income and obtain relief from stringent consequences under the BMA, including any tax, penalty and prosecution, subject to compliance with the prescribed requirements.