Income Tax

CBDT Notifies Foreign Assets of Small Taxpayers Disclosure Scheme Rules, 2026 — Full Guide

Published 17 Aug 2026· Updated 17 Aug 2026· 7 min read

Executive Summary

The Central Board of Direct Taxes has notified the Foreign Assets of Small Taxpayers – Disclosure Scheme Rules, 2026 vide Notification No. 114/2026, dated 14 August 2026, coming into force from 16 August 2026 and open until 31 December 2026. The Scheme gives taxpayers with previously undisclosed foreign income or foreign assets — valued as on 31 March 2026 — a structured, fee-based route to disclose, pay a compounding-style fee, and obtain protection from further tax, penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Two eligibility categories apply, differentiated by the value of the undisclosed foreign income/assets and the applicable fee, and the process runs through a four-form sequence (Form 1 declaration, Form 2 fee determination, Form 3 payment proof, Form 4 confirmation).

Background

The Black Money Act, 2015 imposes stringent tax, penalty (up to 300% of the tax on undisclosed foreign assets), and prosecution consequences (rigorous imprisonment) on Indian residents who fail to disclose foreign income or assets in their Income Tax Return, principally via Schedule FA. In practice, many small taxpayers — those with modest-value foreign bank accounts, inherited overseas property, small shareholdings received through employee stock plans abroad, or similar holdings — have found themselves technically non-compliant without the scale or intent typically associated with the Act’s core targets. The 2026 Scheme responds to this gap by creating a defined, time-bound, fee-based disclosure window specifically calibrated for smaller-value cases, rather than leaving such taxpayers exposed to the Act’s full penal architecture or requiring them to wait for a departmental compliance campaign to catch up with them.

Key Provisions

Valuation date: All foreign assets covered by a declaration must be valued as on 31 March 2026, using asset-specific fair market value (FMV) methods prescribed in the notification for bank accounts, immovable property, jewellery, shares and securities, artistic works, and other categories of assets.

Category 1 — undisclosed foreign income and assets up to ₹1 crore: Where the aggregate value of undisclosed foreign income and undisclosed foreign assets does not exceed ₹1 crore, the taxpayer pays a fee equal to 60% of the total value of the undisclosed income/assets.

Category 2 — foreign assets not disclosed in the ITR, up to ₹5 crore: Where the taxpayer holds foreign assets that were simply not reported in the Income Tax Return (a narrower category than outright undisclosed income), and the aggregate value does not exceed ₹5 crore, the fee payable is either Nil or ₹1 lakh, depending on the specific facts set out in the notification.

Filing sequence:
– Form 1 — the taxpayer files an online declaration disclosing the foreign asset(s) or foreign income.
– Form 2 — after examining the declaration, the Income Tax Department issues Form 2, quantifying the fee payable.
– Payment window — the fee must be paid within two months from the end of the month in which Form 2 is received; a further extension of up to two additional months is available, subject to interest at 1% per month or part thereof on delayed payment, and part-payments are permitted within the window.
– Form 3 — the taxpayer files proof of payment.
– Form 4 — the Department issues Form 4, confirming the declaration is valid.

Protection granted: Once Form 4 is issued, the taxpayer obtains protection from further tax, penalty, and prosecution under the Black Money Act, 2015 in respect of the disclosed foreign income/assets.

Why It Matters

This is a materially significant compliance opportunity for CA practices with clients holding smaller-value, previously unreported foreign holdings — a category that has historically had almost no proportionate remedy short of the Black Money Act’s full penal exposure. With a hard closing date of 31 December 2026, practitioners have a defined window to identify at-risk clients, assess whether Category 1 or Category 2 treatment applies, and file before the Scheme lapses. Given that fees scale sharply between the two categories (60% of value under Category 1 versus Nil/₹1 lakh under Category 2), correctly characterising a client’s facts — undisclosed foreign income/assets versus foreign assets simply omitted from the ITR — is the single most consequential judgment call in using this Scheme.

Key Takeaways

The Scheme is open from 16 August 2026 to 31 December 2026 — a fixed, non-extendable-on-record window as of this notification.
All covered foreign assets are valued as on 31 March 2026, using the FMV methodology prescribed in the notification for each asset class.
Category 1 (undisclosed foreign income/assets ≤ ₹1 crore) attracts a 60% fee on the total value — a high but certain cost, in exchange for finality and protection from prosecution.
Category 2 (foreign assets omitted from the ITR, ≤ ₹5 crore) is materially cheaper — Nil or ₹1 lakh — making correct categorisation critical to advising clients accurately.
The Form 1→2→3→4 sequence is administrative but time-bound: the payment window (two months from Form 2, extendable by up to two more with 1%/month interest) must be tracked carefully to avoid losing the benefit of a filed declaration.

Practical Implications

CA practices should treat this Scheme as a proactive advisory opportunity rather than a reactive one: firms with clients who have foreign employment history, NRI-to-resident transitions, inherited overseas assets, or overseas investment platforms should specifically screen for Schedule FA gaps in prior-year ITRs as part of this year’s compliance review, rather than waiting for a client to raise it. Where a gap is identified, the categorisation exercise (undisclosed income/assets vs. assets merely omitted from the ITR) should be documented contemporaneously, since it directly determines whether the applicable fee is 60% of value or a nominal/nil amount. Firms should also build the Form 2 payment deadline into their standard client-deadline tracking the moment a Form 1 is filed, given the interest cost of delay and the finite extension available.

Action Checklist

Screen existing clients’ ITR history (particularly Schedule FA) for any foreign income or foreign asset that may not have been fully or accurately disclosed.
For each identified gap, determine and document whether it falls under Category 1 (undisclosed foreign income/assets, ≤ ₹1 crore, 60% fee) or Category 2 (foreign assets omitted from ITR, ≤ ₹5 crore, Nil/₹1 lakh fee).
Value all covered foreign assets as on 31 March 2026 using the FMV methodology prescribed for the relevant asset class in the notification.
File Form 1 well before the 31 December 2026 closing date to allow time for the Form 2→payment→Form 3→Form 4 sequence to complete within the window.
Diarise the Form 2 payment deadline (two months from month-end of receipt, extendable by up to two more months with 1%/month interest) the moment Form 2 is issued to any client.

Relevant Sections / Rules / Notifications

Notification No. 114/2026, dated 14 August 2026 (Foreign Assets of Small Taxpayers – Disclosure Scheme Rules, 2026), effective 16 August 2026
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the protective umbrella the Scheme operates under)
Schedule FA, Income Tax Return (the standard foreign-asset disclosure mechanism this Scheme is designed to remediate gaps in)

FAQs

Q: Who should consider using this Scheme?
A: Any resident taxpayer with foreign income or foreign assets that were not properly or fully disclosed in a prior Income Tax Return, particularly where the aggregate value falls within the ₹1 crore (Category 1) or ₹5 crore (Category 2) thresholds set out in the notification.

Q: Is the fee always 60% of the value of the foreign assets?
A: No — 60% applies specifically to Category 1 (undisclosed foreign income and assets, aggregate value up to ₹1 crore). Category 2, which covers foreign assets that were simply not disclosed in the ITR (up to ₹5 crore), attracts a much smaller fee of Nil or ₹1 lakh depending on the facts. Correctly identifying which category applies is essential before advising a client on cost.

Q: What happens if the fee isn’t paid within the initial two-month window after Form 2?
A: The Scheme allows a further extension of up to two additional months, but delayed payment attracts interest at 1% per month or part of a month, and the rules permit payment in parts within the window. Missing the extended window altogether would put the benefit of the declaration at risk.

Internal Links

Practical Compliance Guide: Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 — /practical-compliance-guide-foreign-assets-disclosure-scheme-2026/ (companion article)
Income Tax & CBDT Notifications hub — /category/income-tax/

Practical Compliance Guide: Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (companion article)
Delhi HC (DB): Section 107(6) Pre-Deposit Does Not Apply to Director Penalty Appeals from Pre-Oct-2025 SCNs

Author & Disclaimer

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute tax advice. Eligibility, categorisation and fee computation under the Scheme should be independently verified for each client’s facts, against the full text of Notification No. 114/2026, with a qualified professional before filing.