The Central Board of Direct Taxes (CBDT) has notified the Foreign Assets of Small Taxpayers—Disclosure Scheme Rules, 2026, providing a structured mechanism for eligible taxpayers to disclose certain undisclosed foreign assets and foreign income.
The new framework is aimed at taxpayers having relatively smaller-value foreign assets or income falling within specified statutory thresholds. It lays down the valuation methodology, eligibility thresholds, amount payable, electronic filing procedure, payment timelines and certification process for declarations.
Buy Now: Recovery Of Tax Dues And Penalty Against Legal Heirs Of A Deceased Assessee : Case Compilation
Scheme Provides Two Broad Disclosure Routes
The Rules prescribe two distinct categories under the table referred to in Section 133 of the Finance Act, 2026.
The first category covers undisclosed foreign assets and undisclosed foreign income, where their aggregate value does not exceed â‚ą1 crore. The second category covers specified foreign assets, including assets acquired when the taxpayer was a non-resident from income arising outside India, as well as assets acquired from income that had already been offered to tax in India but were subsequently not disclosed in the relevant foreign-assets schedule. For this second category, the aggregate value of the assets must not exceed â‚ą5 crore.
The Rules specifically provide that the aggregate value under Table Sl. No. 1 cannot exceed â‚ą1 crore, while the aggregate value of assets covered by Table Sl. No. 2 cannot exceed â‚ą5 crore.
â‚ą1 Crore Threshold for Undisclosed Foreign Income and Assets
For taxpayers falling under the first category, the combined value of undisclosed foreign assets and undisclosed foreign income must remain within â‚ą1 crore.
The Rules illustrate that a taxpayer having a foreign bank account valued at â‚ą55 lakh as on March 31, 2026 and undisclosed foreign income of â‚ą25 lakh would have an aggregate value of â‚ą80 lakh and would therefore be eligible to make a declaration.
Similarly, undisclosed foreign income of â‚ą40 lakh earned in one year and â‚ą50 lakh earned in another year, aggregating to â‚ą90 lakh, would also remain within the prescribed threshold.
However, a foreign property valued at â‚ą90 lakh coupled with undisclosed foreign income of â‚ą30 lakh would result in an aggregate value of â‚ą1.20 crore, making the taxpayer ineligible under the â‚ą1 crore category.
â‚ą5 Crore Threshold for Certain Foreign Assets
The second category is broader in terms of asset value but does not permit undisclosed foreign income to be included in the same manner as the first category.
The Rules provide an example of a foreign mutual fund valued at â‚ą2 crore and foreign shares valued at â‚ą2.5 crore. Since their combined value of â‚ą4.5 crore does not exceed â‚ą5 crore, the taxpayer can make a declaration.
In contrast, foreign immovable property worth â‚ą3 crore combined with foreign securities worth â‚ą3.5 crore results in an aggregate value of â‚ą6.5 crore. Such a taxpayer falls outside the â‚ą5 crore threshold and cannot avail the scheme.
Special Relief for Assets Acquired While Non-Resident
One important category covered by the scheme concerns foreign assets acquired out of income accruing or arising outside India during a period when the taxpayer was a non-resident, but which were not subsequently disclosed in the relevant schedule after the taxpayer became resident in India.
The Rules give the example of a plot of land outside India acquired in 2015 from foreign income when the taxpayer was a non-resident. After becoming resident in India, the taxpayer failed to disclose the property in the applicable return schedule. With the property’s value at â‚ą3 crore as on the valuation date, the example falls within the â‚ą5 crore category and attracts a â‚ą1 lakh fee.
The scheme also covers certain foreign assets acquired from income that had already been offered to tax in India but were not subsequently disclosed in the relevant schedule of the return.
Foreign Assets Acquired from Taxed Income Also Covered
The Rules specifically recognise situations where the underlying income has already been subjected to Indian income tax but the foreign asset itself was inadvertently or otherwise not reported in the relevant schedule.
The Rules provide an illustration involving foreign mutual fund units purchased from income offered to tax in India. The taxpayer subsequently failed to disclose the mutual fund units in the relevant schedule.
Where such assets remain within the â‚ą5 crore aggregate threshold, the scheme can be utilised. However, if multiple assets together exceed â‚ą5 crore, the taxpayer becomes ineligible.
For example, foreign mutual fund units valued at â‚ą2.5 crore and quoted shares and securities valued at â‚ą4 crore have a combined value of â‚ą6.5 crore. Since this exceeds â‚ą5 crore, the Rules expressly state that the taxpayer cannot make a declaration under the scheme.
Valuation Date Fixed as March 31, 2026
A crucial feature of the Rules is that March 31, 2026 has been prescribed as the valuation date.
The Rules define “valuation date” as March 31, 2026, while “last date” for purposes of the scheme is defined as December 31, 2026.
Consequently, eligibility under the â‚ą1 crore and â‚ą5 crore thresholds has to be tested with reference to the prescribed valuation methodology as applicable on March 31, 2026.
Detailed Fair Market Value Rules Prescribed
The Rules provide detailed mechanisms for determining the fair market value (FMV) of different categories of foreign assets.
For bullion, jewellery and precious stones, the FMV is generally the higher of the acquisition cost and the price that the asset would ordinarily fetch in the open market on the valuation date. Where an appropriate valuation is not carried out, indexed cost of acquisition is treated as the FMV.
A similar approach is prescribed for artistic works, including archaeological collections, drawings, paintings and sculptures.
For immovable property, the FMV is the higher of the acquisition cost and the price the property would ordinarily fetch if sold in the open market on the valuation date. The taxpayer may obtain a valuation report from a recognised valuer in the country or specified territory where the property is located. If such valuation is not carried out, the indexed acquisition cost is deemed to be the FMV.
Special Method for Foreign Bank Accounts
The Rules adopt a specific methodology for determining the value of foreign bank accounts.
Generally, the value of a foreign bank account is based on the sum of deposits made into the account from the date of opening up to March 31, 2026.
However, deposits representing money subsequently redeposited from withdrawals are not counted again, preventing circular transactions from artificially inflating the value of the account.
The Rules contain a detailed illustration involving a foreign bank account opened in 2010. After taking account of deposits and withdrawals, the aggregate value is determined at US$4,900, which is then converted into Indian rupees using the applicable exchange rate as on March 31, 2026.
Foreign Currency Conversion Rules
The Rules also establish a mechanism for converting foreign-currency-denominated assets into Indian rupees.
Where the asset is denominated in a permitted currency designated by the Reserve Bank of India, its value is converted into Indian currency using the RBI reference rate applicable on the valuation date.
Where the asset is denominated in another currency, its value is first converted into US dollars using the rate specified by the central bank of the country or jurisdiction where the asset is located, and the resulting US-dollar value is then converted into Indian rupees using the RBI reference rate.
Valuation of Foreign Shares and Securities
The Rules contain elaborate provisions for quoted and unquoted shares and securities.
For quoted shares and securities, the valuation methodology refers to prices on an established securities market. An “established securities market” is defined as an officially recognised and government-supervised exchange having a meaningful annual value of shares traded.
For the purpose of this definition, the exchange must have an annual trading value exceeding US$1 billion during each of the three calendar years immediately preceding the valuation date. The Rules also prescribe a meaningful ongoing trading-volume test, including trading on at least 60 business days and a trading volume of at least 10% of the average number of outstanding shares of the relevant class.
For unquoted equity shares, the Rules prescribe a valuation formula based on the company’s assets, liabilities and paid-up equity share capital, while unquoted shares and securities other than equity shares are generally valued by reference to acquisition cost or open-market value, subject to the prescribed methodology.
60% Amount Payable on the â‚ą1 Crore Category
The financial consequence of making a declaration under the first category is substantial.
The Rules prescribe that the aggregate amount payable in respect of assets and income falling under Table Sl. No. 1 is 60% of the combined fair market value. The Form 1 framework specifically requires the declarant to compute the amount payable at 60% of the combined value.
The Rules’ illustration demonstrates how this works. In the example, an undisclosed foreign bank account is valued at â‚ą60 lakh and undisclosed foreign income at â‚ą20 lakh. Tax is calculated at 30% on each component, resulting in aggregate tax of â‚ą24 lakh. A penalty equivalent to 100% of that tax, also â‚ą24 lakh, brings the total amount payable to â‚ą48 lakh, equivalent to 60% of the combined â‚ą80 lakh value.
â‚ą1 Lakh Fee for the Second Category
For assets falling under the second category, the prescribed amount is significantly different.
The Rules’ illustration involving a foreign property worth â‚ą3 crore, acquired when the taxpayer was a non-resident, states that the amount payable is a â‚ą1 lakh fee.
The declaration form accordingly requires taxpayers to enter either Nil or â‚ą1 lakh as the fee payable for assets covered by Table Sl. No. 2.
20% Valuation Variation Tolerance
The Rules also provide an important protection concerning valuation differences.
Where the FMV of an asset other than a bank account declared in Form 1 differs from the value subsequently determined by the Assessing Officer or another income-tax authority during assessment or inquiry proceedings, the declaration will not be treated as invalid merely because of that difference if the variance does not exceed 20% of the FMV declared.
This provision is designed to address situations where valuation methodologies produce different results without necessarily implying deliberate misrepresentation.
Declaration to Be Filed Electronically in Form 1
The Rules establish a fully electronic compliance mechanism.
An eligible taxpayer must make the declaration electronically in Form 1 to the income-tax authority. The form requires basic details including name, address, PAN and, where applicable, passport details.
The declarant must identify the type of foreign asset or income, relevant previous year, residential status during the year of acquisition or earning, supporting documents and the nature of the asset. The form covers bank accounts, immovable property, jewellery, artistic works, shares and securities, other assets and foreign income.
The declaration also requires a consolidated statement and a categorised summary of foreign assets and income for valuation purposes.
Four-Stage Electronic Compliance Process
The Rules effectively create a four-form compliance process.
Form 1 is the taxpayer’s declaration of foreign assets or income.
Form 2 is the order issued electronically by the income-tax authority determining the amount payable, including applicable penalty or fee.
Form 3 is the electronic intimation of payment, together with proof of payment and details of any interest payable.
Form 4 is the final order certifying the validity of the declaration and payment for the purposes of Section 139. The income-tax authority is required to pass this certification within one month from the end of the month in which the payment intimation is submitted electronically.
Payment Timeline: Two Months Without Interest
Once the income-tax authority passes the order under Section 135(1), the declarant gets an initial payment period of two months from the end of the month in which the order is received.
Form 3 itself captures the date of receipt of Form 2, the initial due date, the amount paid and any outstanding amount.
The Rules provide an illustration where an order is passed on September 22, 2026. Since the month ends on September 30, the initial payment deadline is November 30, 2026. Payment within that period does not attract the additional interest prescribed for delayed payment.
Additional Interest of 1% Per Month for Delay
Where payment is not completed within the initial two-month period, the Rules permit an additional period subject to interest.
Additional interest is payable at 1% for every month or part thereof beyond the initial two months, subject to a maximum of two additional months. Payments may also be made in parts.
In the illustration, a payment made one month late attracts interest of â‚ą48,000 on an amount of â‚ą48 lakh. A delay of two months results in interest of â‚ą96,000.
The Rules make clear that if payment is made beyond the maximum permitted additional period, the taxpayer loses the benefit of the scheme.
December 31, 2026 Is the Last Date for Declaration
The Rules expressly define the last date as December 31, 2026. Taxpayers seeking to use the disclosure mechanism therefore need to ensure that their Form 1 declaration is furnished within the prescribed period.
The scheme consequently creates a limited compliance window beginning with the Rules coming into force on August 16, 2026 and ending on December 31, 2026.
What Taxpayers Need to Keep Ready
The prescribed Form 1 indicates that taxpayers will need documentary evidence relating to the acquisition of assets or earning of foreign income.
For foreign bank accounts, the annexure seeks information such as the bank’s name and address, country, account-holder details, account number, date of opening and aggregate credits. For immovable property, details include the nature and location of the property, the person in whose name it is held, acquisition date and acquisition cost, with a valuation report to be attached where applicable.
The form also requires the taxpayer to disclose the relevant previous year and residential status. Passport details are required where the taxpayer claims to have been a non-resident in any year covered by the declaration.
Practical Examples Show How Eligibility Works
The illustrations in the Rules provide a useful picture of the scheme’s operation.
A foreign bank account valued at â‚ą55 lakh combined with â‚ą25 lakh of undisclosed foreign income gives an aggregate value of â‚ą80 lakh and qualifies under the â‚ą1 crore limit.
But a foreign property worth â‚ą90 lakh combined with â‚ą30 lakh of foreign income produces â‚ą1.20 crore and falls outside the first category.
Similarly, foreign mutual funds worth â‚ą2 crore and foreign shares worth â‚ą2.5 crore aggregate to â‚ą4.5 crore and remain within the â‚ą5 crore threshold. However, foreign property worth â‚ą3 crore combined with foreign securities worth â‚ą3.5 crore aggregates to â‚ą6.5 crore and is outside the scheme.
Significance for Small Taxpayers with Legacy Foreign Assets
The Rules provide a targeted compliance route for taxpayers whose foreign assets or income fall within the specified monetary limits, particularly in situations involving historical non-disclosure.
The second category may be particularly relevant to taxpayers who acquired foreign assets while they were non-residents and later became Indian residents without reporting those assets in the relevant schedule, as well as taxpayers who acquired foreign assets from income that had already been subjected to Indian tax but failed to separately disclose the assets.
At the same time, the scheme is not a blanket amnesty for all foreign assets. The â‚ą1 crore and â‚ą5 crore ceilings are aggregate thresholds, and crossing the applicable limit can make the taxpayer ineligible. The Rules’ illustrations expressly demonstrate that multiple assets and income are aggregated for determining eligibility.
CBDT Creates Structured Exit Route for Eligible Foreign-Asset Non-Disclosure
The Foreign Assets of Small Taxpayers—Disclosure Scheme Rules, 2026 establish a detailed statutory framework for taxpayers with qualifying foreign assets or income to regularise specified past non-disclosures.
The key features are the March 31, 2026 valuation date, December 31, 2026 declaration deadline, â‚ą1 crore threshold for the first category, â‚ą5 crore threshold for specified foreign assets, 60% aggregate liability for the first category, â‚ą1 lakh fee for the second category, detailed FMV rules, a 20% valuation-variance protection, electronic Forms 1 to 4 and a two-month initial payment window.
With the Rules taking effect from August 16, 2026, eligible taxpayers will need to carefully identify all foreign assets and income, determine the applicable category, compute the aggregate value using the prescribed valuation rules and complete the electronic declaration within the statutory window.
Membership Required to Access Notification Details & Copy
To view the complete Notification Details and Download Copy, you must have an active membership. Please subscribe to continue.
