The Central Board of Direct Taxes (CBDT) has notified the Foreign Assets of Small Taxpayers-Disclosure Scheme Rules, 2026, effective August 16, 2026. According to the notification, the scheme provides small taxpayers with a window to declare undisclosed foreign assets and income, with relief ranging from full immunity to a 100% penalty depending on the value and nature of the disclosure. The scheme comes under Chapter IV of the Finance Act, 2026 and covers four categories of foreign holdings: undisclosed assets located outside India, undisclosed foreign income, assets acquired abroad during non-residency periods but not declared on becoming resident, and assets purchased from already-taxed income but left out of the relevant schedule in income tax returns. As per the latest rules, the scheme enables eligible taxpayers to declare certain undisclosed foreign assets, undisclosed foreign income, or undeclared foreign assets, on payment of a specified tax or fee. The Income Tax India handle announced that the FAQs provide clear and concise explanations of the scheme for taxpayers and other stakeholders.
Eligibility is capped at two thresholds under the scheme. Declarations combining undisclosed foreign income and undisclosed assets cannot exceed ₹1 crore in aggregate fair market value as of March 31, 2026. A separate category covering assets acquired during non-residency or from disclosed income but not reported is capped at ₹5 crore. For the ₹1 crore bracket, declarants must pay 30% tax on the value of undisclosed assets and income, plus a 100% penalty on that tax, taking the effective payout to 60% of the aggregate value. The ₹5 crore bracket levies only a flat fee of ₹1 lakh, with no tax or penalty component. Both resident and certain non-resident or RNOR taxpayers can file a declaration, provided they meet specified residency conditions for the year the asset was acquired or income earned. The voluntary disclosure of foreign asset scheme is specifically meant for small taxpayers such as students, young professionals, tech employees, and relocated non-Indian residents (NRIs). For example, if an undisclosed foreign bank account is valued at ₹60 lakh and undisclosed foreign income is worth ₹20 lakh, the aggregate tax payable would be ₹48 lakh according to CBDT's FAQ section. The undisclosed asset, including financial interest, must be in the name of the taxpayer, including where he or she is a beneficial owner.
The scheme requires accurate valuation of foreign assets using specific methodologies for different asset categories. For bank accounts, taxpayers cannot simply use the balance on March 31, 2026, but must add up eligible deposits from the account's opening date to March 31, excluding deposits representing money withdrawn and later redeposited to prevent circular transactions. For quoted shares, the highest and lowest prices on March 31 are averaged and compared with purchase cost, while unquoted equity shares use prescribed calculations based on company assets and liabilities. For business interests in foreign partnerships, AOPs or LLPs, the entity's net assets are calculated as of March 31 and divided among partners according to capital contribution and profit-sharing ratios. The rules cover comprehensive asset classes including bank accounts, shares, overseas property, bullion, jewellery and precious stones, paintings, artwork, and interests in foreign partnerships, AOPs and LLPs. For foreign currency conversion, RBI reference rates as of March 31, 2026 are used for currencies on the specified list, while other currencies are converted to US dollars first and then to rupees using applicable rates. For assets without prescribed valuation formulas such as foreign real estate or jewellery, the fair market value is defined as the higher of its original acquisition cost or its open-market value as of March 31, 2026, with the CBDT recommending supporting this market value with an official valuation report from a recognized authority in the host country.
Declarants who complete payment within the prescribed timeline receive immunity from further tax, penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, once the declaration is certified as valid. The rules also provide a buffer for genuine valuation disputes, stating that if the fair market value declared in Form 1 differs from what an assessing officer determines during assessment or inquiry, the declaration will not be treated as invalid solely on that ground, provided the variance does not exceed 20% of the declared value. This provision is designed to address situations where valuation methodologies produce different results without necessarily implying deliberate misrepresentation. Additionally, the income or amount invested in the declared asset under this scheme will not be included in the total income of the taxpayer under the Income-tax Act, 1961 or the Black Money Act, 2015. Assets valued above ₹5 crore are not eligible under the scheme. The scheme does not cover proceeds of crime under pending PMLA proceedings or income/assets for an assessment year where proceedings have been completed under the Black Money Act, 2015.
Taxpayers can file their FAST-DS declaration electronically between August 16 and December 31, 2026 using Form 1. The taxpayer must include documents supporting the acquisition of the asset or earning of the income, along with a valuation report if a valuation has been carried out. Once the tax department determines the amount payable, it will communicate it to the taxpayer through Form 2. Taxpayers have two months from the end of the month in which the Form 2 order is issued to settle their tax dues, with an additional extension of up to two months available, subject to 1% simple interest per month of delay. Failing to pay within this final window forfeits all scheme benefits. Once payment is completed, the taxpayer must submit Form 3 electronically alongside proof of payment, after which the tax department issues a formal payment and validation certificate. For assets other than bank accounts, a valuation difference of up to 20% between the declared FMV and the value determined by the tax officer will generally be accepted, according to CBDT's FAQ on the scheme.
