The Central Board of Direct Taxes (CBDT) has notified the 'Foreign Assets of Small Taxpayers-Disclosure Scheme Rules, 2026', providing a one-time window for eligible small taxpayers to declare certain undisclosed foreign assets and income.
The scheme will come into force on August 16 and provides relief from prosecution, subject to compliance with the prescribed conditions. The rules specify four categories of foreign holdings and income that can be declared under the scheme.
These include undisclosed assets located outside India, undisclosed foreign income, assets acquired abroad during a period of non-residence but not declared after becoming a resident, and assets purchased from income on which tax has already been paid but were omitted from the relevant schedule in the income tax return.
Eligible taxpayers will have to submit their declarations electronically in Form 1 by December 31, 2026.
After the Principal Director General or Director General of Income-tax (Systems) determines the amount payable and issues an order in Form 2, the declarant will have two months to make the payment without interest.
An additional two-month window will be available for payment, subject to interest at 1 per cent per month on the outstanding amount. If the payment is not made within the prescribed period, the benefit of the scheme will lapse and the declaration will be treated as void.
The scheme has two separate eligibility thresholds. Declarations involving undisclosed foreign income and undisclosed foreign assets cannot exceed an aggregate fair market value of Rs 1 crore.
A separate category covering assets acquired during a period of non-residence, or assets acquired from disclosed and already-taxed income but not reported in the relevant tax return schedule, has a higher threshold of Rs 5 crore.
For disclosures falling within the Rs 1 crore category, taxpayers will be required to pay tax at 30 per cent of the value of the undisclosed assets or income, along with a penalty equivalent to 100 per cent of the tax payable.
The combined payment would therefore amount to about 60 per cent of the declared value.
For eligible disclosures under the Rs 5 crore category, the scheme provides for a prescribed fee, which can be either nil for smaller disclosures or Rs 1 lakh, without an additional tax or penalty component.
The fair market value of the assets will be determined as of the valuation date of March 31, 2026, in accordance with rules applicable to different types of assets, including bullion, jewellery, artwork, quoted and unquoted shares, immovable property and bank accounts.
For foreign bank accounts, the value will be calculated based on the aggregate deposits made since the account was opened, or since an earlier declaration under the Black Money Act, wherever applicable.
Foreign currency values will be converted into Indian rupees using the Reserve Bank of India's reference rate applicable on the valuation date.
The one-time disclosure window is aimed at providing eligible small taxpayers an opportunity to regularise specified foreign assets and income that were not disclosed earlier, subject to payment of the prescribed tax, penalty or fee and compliance with the scheme's conditions.
