India Opens Foreign Asset Disclosure Scheme on August 16

The Income Tax Department has announced the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026, which will allow eligible taxpayers to disclose certain previously undeclared foreign assets and income. The scheme will be available from August 16, 2026, to December 31, 2026.

All declarations under the scheme will be processed electronically, according to the Central Board of Direct Taxes (CBDT). The scheme is open to residents, non-residents, and residents but not ordinarily resident (RNOR), subject to certain conditions.

A key requirement for eligibility is that the individual must have been a resident of India in the year to which the undisclosed income relates or in the year when the foreign asset was acquired. Taxpayers who did not file an income tax return, left out the foreign asset or income from an earlier return, or if such income or asset may otherwise have escaped assessment can use the scheme.

The declaration must be filed electronically in Form 1. The scheme divides eligible disclosures into two categories. The first category covers undisclosed foreign assets or foreign income on which tax was never paid, with a total value capped at Rs 1 crore based on the value as of March 31, 2026.

Taxpayers in this category will have to pay 30 per cent tax plus an additional amount equal to the tax, taking the effective outgo to 60 per cent. For example, if a taxpayer has Rs 60 lakh in an undisclosed foreign bank account along with Rs 20 lakh in undisclosed income, the total payment would be Rs 48 lakh.

The second category covers foreign assets on which tax has already been paid or assets acquired when the individual was a non-resident but which were not reported in the relevant schedule of the income tax return. The maximum asset value allowed under this category is Rs 5 crore.

Instead of a percentage-based tax, taxpayers will have to pay a fixed fee of Rs 1 lakh. Those holding foreign assets exceeding Rs 5 crore will not be eligible for the scheme under this category.

After examining Form 1, the tax authority will issue an order in Form 2 within one month, specifying the amount payable. The taxpayer will then get two months to make the payment. The deadline can be extended by another two months by paying simple interest of 1 per cent per month.

If payment is not completed within the maximum four-month period, the taxpayer will lose the benefit of the scheme for that declaration. The scheme provides a one-time opportunity for small taxpayers to disclose their previously undeclared foreign assets and income, and it is expected to help the government track and tax unreported foreign income.

The scheme's success will depend on the number of taxpayers who come forward to disclose their foreign assets and income. The government has taken steps to make the scheme user-friendly, with electronic filing and a clear payment timeline.

The scheme is part of the government's efforts to curb black money and tax evasion. By providing a one-time opportunity for taxpayers to disclose their foreign assets and income, the government aims to bring more people into the tax net and increase revenue.

The scheme is also expected to help reduce the risk of prosecution and penalties for taxpayers who have not reported their foreign assets and income. By disclosing their assets and income under the scheme, taxpayers can avoid the risk of prosecution and penalties, and instead pay a lower tax rate.

Overall, the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026, is a significant step towards curbing tax evasion and bringing more people into the tax net. It provides a one-time opportunity for small taxpayers to disclose their previously undeclared foreign assets and income, and it is expected to help the government track and tax unreported foreign income.