ET OnlineAI generated representative image
For returning NRI students, professionals, tech employees, relocated NRIs, and residents with overseas financial footprints, reporting of foreign income and foreign assets—including foreign bank accounts—has emerged as one of the most litigated and high-risk areas of tax compliance.
Income Tax Guide
Income Tax Union Budget FY 2026-27 LiveIncome Tax Slabs FY 2025-26Income Tax Calculator 2025
What is often dismissed as a mere “form-filling lapse” in the FA or FSI Schedule under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”) can escalate into financial exposure of up to 120% of the income or asset value—comprising 30% tax and a penalty of up to three times the tax in cases involving undisclosed foreign income or assets.
Even more striking, a simple reporting lapse—where there is no undisclosed income or asset at all—can attract a separate ₹10 lakh penalty under Sections 42 or 43.
- Recognising the disproportionate penal consequences and increasing litigation in this domain, the Government has proposed the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026, in Budget 2026. The Scheme seeks to facilitate voluntary compliance by eligible taxpayers in cases involving undisclosed foreign income or assets and technical non-reporting and will be open for a six-month period from a date to be notified by the Central Government.
1. Data-Driven Enforcement Has Changed the Equation
Enforcement is no longer complaint-driven. Based on information received from foreign jurisdictions under the Common Reporting Standard (CRS), FATCA, and the Automatic Exchange of Information (AEOI) framework under tax treaties, the Income-tax Department has significantly expanded data analytics-based scrutiny.
In addition to NUDGE campaigns, Foreign Asset Investigation Units (FAIU) have issued summons under Section 131(1A) of the Income-tax Act, 1961 in thousands of cases relating to earlier financial years. In many instances:
- Assessment or reassessment proceedings under Section 10 of the Black Money Act have been initiated; and
- Penalty proceedings under Sections 42 and 43 for non-reporting in FA/FSI schedules have also been triggered.
- For returning NRIs and residents with overseas exposure, the likelihood of detection of undisclosed foreign income and assets—including foreign bank accounts—has materially increased.
The question is no longer, “Will this be noticed?” It is, “What happens when it is?”
2. The Uncomfortable Reality
Under Section 3 of the Black Money Act:
- Undisclosed foreign income and assets are taxed at 30%.
- An undisclosed foreign asset is taxed at its fair market value in the year it comes to the notice of the Assessing Officer—not the year of acquisition.
An asset acquired years ago at a modest cost may therefore be taxed today at a significantly higher market value.
Section 4 defines “undisclosed foreign income and asset” broadly to include:
- Foreign income chargeable to tax but not disclosed in the return filed under section 139(1), 139(4) or 139(5) or return was not filed, and
- The fair market value of an undisclosed foreign asset.
The Real Risk: Penalty and Prosecution: The penalty of ₹10 lakh under Sections 42 and 43 and the prosecution provisions under Sections 49 and 50 of the Black Money Act do not apply to non-immovable foreign assets with an aggregate value below ₹20 lakh (with effect from 1 October 2024)The exposure is not merely financial—it can assume criminal dimensions.3. How the Proposed Scheme Changes the Equation
The Scheme is not confined to current residents. It also extends to individuals who are presently non-residents or Not Ordinarily Residents (NORs), provided the undisclosed foreign income or asset relates to a year in which they were resident in India under Section 6 of the Income-tax Act, 1961.
This is particularly significant for returning NRIs whose residential status has shifted across years.
A declaration under the proposed Scheme may be made for any previous year, subject to the following limits:
- Undisclosed foreign income and the value of undisclosed foreign assets (as on 31 March 2026), in aggregate, not exceeding ₹1 crore; or
- Cases where there is no undisclosed foreign income or asset, but foreign income or assets were not reported in the FA/FSI Schedule of the return or the return was not furnished despite a mandatory filing requirement under the fourth proviso to Section 139(1) of the Income-tax Act, 1961.
3. The Real Decision: Risk or Resolution?
The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 addresses legacy non-disclosures relating to earlier financial years, including cases where undisclosed foreign income or assets have escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961.
For smaller taxpayers facing disproportionate penal consequences, the contrast is clear:
₹1.20 crore vs ₹60 lakh
₹10 lakh penalty vs ₹1 lakh compliance fee
Prosecution risk vs immunity
Prolonged litigation vs statutory finality
In a data-driven enforcement regime, voluntary regularisation is not merely prudent—it may be economically rational.
The issue is no longer whether enforcement will intensify.
The real question is whether a time-bound six-month compliance window should be overlooked.
The author, O.P. Yadav, is a former IRS officer with over 36 years of experience in tax administration, education, and training. The views expressed are personal and based on the author’s understanding of the relevant provisions of the Finance Bill, 2026. The analysis is subject to the final enactment of the law and the rules to be notified under Section 127 of the proposed scheme.
aniltikotekar4sme.com 