A note for salaried professionals, returning non-residents and resident taxpayers whose foreign assets were not reported in Schedule FA

Who should read this article?

This article is particularly relevant for:

• employees holding RSUs or ESPP shares of a foreign parent company;
• persons who previously worked in the USA, the UK, Canada, Singapore, Australia or the Gulf;
• holders of 401(k), IRA, RRSP, superannuation and other foreign retirement accounts;
• returning NRIs who have resumed Indian residence;
• persons who were RNOR and have since become resident and ordinarily resident;
• taxpayers who missed Schedule FA in earlier income tax returns;
• persons holding foreign bank accounts or overseas brokerage accounts;
• persons holding immovable property outside India;
• persons who began declaring foreign assets only in recent assessment years; and
• persons who have received a compliance communication on foreign assets from the Income Tax Department.

Overview

The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (“FAST-DS” or “the Scheme”) has been introduced by Chapter IV, comprising sections 130 to 144, of the Finance Act, 2026, and has been given effect by the Foreign Assets of Small Taxpayers – Disclosure Scheme Rules, 2026, notified vide Notification No. 114/2026 dated 14 August 2026 (G.S.R. 732(E)). The Scheme came into force on 16 August 2026 and the last date for filing a declaration is 31 December 2026.

Considerable commentary on the Scheme proceeds on the footing that a taxpayer who has omitted Schedule FA is exposed to a mandatory penalty of ₹10 lakh for each assessment year, and must therefore declare. That statement requires qualification on two counts.

First, with effect from 1 October 2024, a small-value exemption in sections 42 and 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“the Black Money Act”) was widened. Those sections, which impose the penalty of ₹10 lakh, now do not apply to an asset or assets other than immovable property where the aggregate value does not exceed ₹20 lakh. The Central Board of Direct Taxes has applied this as a peak-value test, operating where the aggregate value did not exceed ₹20 lakh at any time during the relevant previous year. On the prosecution side, the Board directed in 2025 that proceedings under sections 49 and 50 of the Black Money Act are not to be initiated in cases where penalty under section 42 or 43 is not imposed or is not imposable at that threshold, and the Finance Act, 2026 has amended sections 49 and 50 to similar effect, with retrospective operation from 1 October 2024.

Secondly, the levy is not automatic. Section 43 provides that the Assessing Officer “may” direct payment of ₹10 lakh, and a Special Bench of the Income Tax Appellate Tribunal, Mumbai has held that the expression confers a discretion rather than imposing a mandatory levy. A number of Benches have deleted the penalty where the omission was found to be bona fide and technical in nature, including in cases involving foreign shares on which the perquisite value had suffered tax deduction at source and the subsequent capital gain had been offered to tax. Other Benches have taken a contrary view and sustained the penalty notwithstanding that the source of the investment stood fully explained. The exposure is therefore real, but the outcome in any given case is presently uncertain.

It follows that the first question for a taxpayer is not how a declaration is to be made, but whether one is required at all. This note addresses both questions.

The Scheme at a glance

The Board has issued a set of 50 frequently asked questions on the Scheme. These are indicative of the departmental view but do not have the force of law.

Preliminary question: whether a declaration is necessary

To decide whether a declaration is required, it is necessary to know what the exposure actually is if no declaration is made. That is set out first, followed by the four questions which determine whether the exposure arises at all on your facts.

What the Black Money Act provides

The consequences of holding an undisclosed foreign asset or foreign income are as follows.

• Tax at a flat rate of 30 per cent on the undisclosed foreign income or on the value of the undisclosed foreign asset. No exemption, no deduction, and no set-off of brought-forward losses that may be admissible under the Income-tax Act, 1961 is allowed.
• Penalty equal to three times the tax, that is 90 per cent of the undisclosed income or of the value of the undisclosed asset. This is in addition to the tax of 30 per cent, so that the aggregate charge is 120 per cent.
• Penalty of ₹10 lakh for failure to disclose foreign income or a foreign asset in the return of income. Section 42 applies where no return was furnished, or it was furnished late; section 43 applies where the return was furnished but the asset was not reported in Schedule FA, or was reported with inaccurate particulars.
• Rigorous imprisonment from three years to ten years for a wilful attempt to evade tax in relation to foreign income or a foreign asset.
• Rigorous imprisonment from six months to seven years for failure to furnish a return in respect of foreign assets, foreign bank accounts or foreign income.
• Protection for small holdings. To protect persons holding foreign accounts with minor balances which may not have been reported out of oversight or ignorance, it was originally provided that failure to report a foreign bank account with a maximum balance of up to ₹5 lakh at any time during the year would not entail penalty or prosecution. With effect from 1 October 2024 this protection was widened to cover all foreign assets other than immovable property where the aggregate value does not exceed ₹20 lakh, the limit being applied to the highest value reached at any time during the year and to the aggregate of all such assets taken together. Prosecution has since been aligned with the same ₹20 lakh line, by the Board’s instruction of 2025 and by amendments made by the Finance Act, 2026 operating retrospectively from 1 October 2024.

What this costs in practice

Illustration A: source not explained. An undisclosed foreign bank account valued at ₹80 lakh, held and not reported in the return for six assessment years, brought to assessment under the Black Money Act.

The same account declared under this Scheme attracts 30 per cent tax and a further 100 per cent of that tax, aggregating to ₹48 lakh, with immunity from further tax, penalty and prosecution under the Black Money Act.

Illustration B: source explained, reporting default only. Vested RSUs valued at ₹1.85 crore on 31 March 2026, on which the perquisite was taxed in salary in each year of vesting, but which were not reported in Schedule FA for six assessment years.

The same holding declared under this Scheme attracts a fee of ₹1 lakh, covering every asset and every year of default, subject to the ceiling of ₹5 crore in the aggregate.

Two qualifications should be kept in view. The penalty under section 43 operates for each assessment year in which the default occurred, so the exposure grows with the number of years for which the asset went unreported. At the same time the levy is discretionary. Section 43 provides that the Assessing Officer “may” direct payment, and a Special Bench of the Income Tax Appellate Tribunal, Mumbai has held that this confers a discretion rather than imposing a mandatory levy. A number of Benches have deleted the penalty where the omission was found to be bona fide and technical, including in cases involving foreign shares on which the perquisite had suffered tax deduction at source and the subsequent capital gain had been offered to tax. Other Benches have sustained the penalty notwithstanding that the source of the investment stood fully explained. The figures above therefore represent the exposure at its highest, and not an outcome that necessarily follows.

The distinction between the two illustrations also explains the design of the Scheme. Where the source of the asset is not explained, the exposure includes the 120 per cent charge under sections 3 and 41, and the corresponding route is Serial No. 1 of the Table in section 133 at 60 per cent. Where the source is explained, because the asset was acquired out of income already taxed in India or earned while the assessee was a non-resident, there is no charge under sections 3 and 41 at all; the only exposure is the reporting penalty under section 43, and the corresponding route is Serial No. 2 at a flat fee of ₹1 lakh.

The exemption is, however, subject to four limitations. Each of the questions below should be answered on the facts of every assessment year in which the asset was held.

Question 1. Was there any foreign income that was not offered to tax in India?

The reference here is to income arising from a source outside India that was chargeable to tax in India and was not returned, such as dividends on foreign shares, interest on a foreign bank account, capital gains on the sale of foreign shares, or rent from a property abroad.

If the answer is yes, the exemption is of no assistance. It relieves against failure to report an asset, and does not extend to income that was never brought to tax. A declaration should be considered, whatever the value of the assets held.

If the answer is no, proceed to Question 2.

Question 2. Does the holding include immovable property situated outside India?

If the answer is yes, the exemption is of no assistance in respect of that property. Immovable property is expressly kept outside the exemption, and no minimum value applies to it. A flat or a plot of land abroad, however modest its value, is therefore exposed and a declaration should be considered.

If the answer is no, proceed to Question 3.

Question 3. Did the total value of the foreign assets, excluding immovable property, exceed ₹20 lakh in any year from FY 2024-25 onwards?

The exemption operates where the aggregate value does not exceed ₹20 lakh. The Board applies this as a test of the highest value reached at any time during the year, and that is the safer basis on which to work. The peak value during the year should therefore be taken, not the value as at 31 March, and the values of all such assets should be added together rather than tested asset by asset.

If the answer is yes, the exemption does not apply for that year and a declaration should be considered.

If the answer is no, proceed to Question 4.

Question 4. Do any of the years in which Schedule FA was omitted fall before 1 October 2024?

This is the limitation most frequently overlooked, and it is decisive in a large number of cases. The exemption in its present form, covering all foreign assets other than immovable property up to ₹20 lakh, took effect only from 1 October 2024. For the period before that date the exemption was much narrower: it covered foreign bank accounts alone, and only where the aggregate balance did not exceed ₹5 lakh.

If the answer is yes, then on the plain language of the provision, foreign shares, brokerage portfolios and retirement accounts held during FY 2019-20 to FY 2023-24 received no protection at all, at any value, and a declaration should be considered for those years. It has been argued that the enhanced ₹20 lakh limit, being a relieving measure, ought to apply to the earlier years as well, but that position is not settled.

If the answer is no, the exemption is available on all four counts.

Summary of the test

Each question is to be asked separately for each assessment year. Where a taxpayer commenced reporting Schedule FA correctly in a recent year but had not reported the same holdings earlier, the earlier years fall to be tested on their own facts. That situation is dealt with separately below.

Where the answer to all four questions is no, a declaration under the Scheme may not be necessary. Where the answer to any one of them is yes, the position should be examined further, and the remainder of this note sets out how a declaration is to be made and what it costs.

There is a further consideration which is independent of the thresholds. A valid declaration culminates in an order in Form 4, which section 135(6) declares to be conclusive as to the matters stated therein. A taxpayer who relies instead on a threshold computation and a departmental instruction leaves the question open to examination on every occasion on which the file is taken up. Certainty has a value of its own, and in a number of cases that consideration alone will justify a declaration.

Why holders of RSUs and retirement accounts are principally affected

The fact pattern encountered most frequently in practice is a consistent one. The assessee is a salaried employee of a multinational group. The perquisite arising on the vesting of restricted stock units was subjected to tax by the employer, is reflected in Form 16 and in Form 26AS, and the tax has been paid in full. The discount on shares acquired under an employee stock purchase plan was similarly brought to tax. There is no concealment of income and no evasion of tax. The default lies solely in the omission of Schedule FA.

Taxation and disclosure are distinct obligations. Payment of tax on the perquisite discharges the charge under the Income-tax Act, 1961. Reporting of the resulting foreign shares in Schedule FA discharges a separate obligation under the Black Money Act, and the penalty for failure to do so does not depend upon any evasion of tax, although whether it is in fact levied is a matter for the discretion of the Assessing Officer.

The likelihood of detection is significant. India receives financial account information automatically from more than one hundred jurisdictions under the Common Reporting Standard, and from the United States under FATCA. Data relating to custodial and brokerage accounts maintained with Charles Schwab, E*TRADE and Morgan Stanley, Fidelity, Morgan Stanley StockPlan Connect, Interactive Brokers and Computershare EquatePlus is received in the ordinary course. The Department has been matching such data against Schedule FA disclosures under its compliance campaign since 2024, and communications have been issued to a substantial number of taxpayers.

Disclosure commenced in a later year: position for earlier years

A situation frequently encountered is that of an assessee who becomes aware of the Schedule FA requirement, often on receipt of a communication under the compliance campaign, and begins reporting the foreign shares and retirement account correctly from AY 2025-26. The earlier years, during which the same assets were held and were not reported, are left undisturbed on the assumption that correct reporting in the current year cures the earlier default.

That assumption is not well founded. The obligation is to be tested year by year. Section 43 of the Black Money Act operates in respect of a failure to furnish information relating to a foreign asset in the return of income for any previous year. Each return constitutes a distinct obligation, and each omission a distinct default which stands completed. Correct reporting in a subsequent return cures that subsequent year alone and has no retrospective effect.

Correction of earlier returns is not available

The obvious course of correcting the earlier returns is not open. A revised return under section 139(5) may be furnished only within the time limit prescribed for the relevant assessment year, which will long since have expired.

An updated return under section 139(8A) remains available for a longer period, but only where it results in additional tax being payable. A correction confined to Schedule FA makes no addition to total income and consequently gives rise to no additional tax, so that the return would not be a valid updated return. The provision cannot be availed of for the purpose of rectifying a reporting omission alone.

Section 132 of the Finance Act, 2026 accordingly provides for precisely this case, being available to a person who has failed to disclose an asset or income in a return of income furnished before the commencement of the Scheme.

Testing the earlier years

Whether a declaration is in fact required for the earlier years depends upon the small-value exemption in sections 42 and 43, and in particular upon the date from which its present form operates.

An assessee who commenced reporting in AY 2025-26 will, by definition, have unreported years falling wholly or substantially before 1 October 2024, being the period during which foreign shares and retirement accounts received no protection on the plain language of the provision. A holding of foreign shares valued at ₹35 lakh in AY 2023-24 therefore falls outside the exemption for that year, and the penalty under section 43 remains available to the Assessing Officer. It has been argued, relying on the reasoning of the Supreme Court in CIT v. Vatika Township (P.) Ltd., that the enhanced threshold, being a relieving provision that operates to the benefit of the assessee, ought to be applied to earlier years as well. The argument is a respectable one but the position is not settled.

Three questions determine whether the earlier years remain exposed:

• whether the aggregate value of the non-immovable foreign assets exceeded ₹20 lakh at any time during any unreported year falling on or after 1 October 2024;
• whether any of the unreported years falls wholly before 1 October 2024, irrespective of value; and
• whether any dividend, interest, accretion or capital gain arising on those holdings was left unreported.

An affirmative answer to any of these questions indicates that the earlier years require attention.

Considerations in favour of the assessee

Two features of the Scheme operate to the advantage of a taxpayer in this position.

The amount payable will ordinarily be the fee of ₹1 lakh. Where the shares were acquired out of perquisite income brought to tax in India, and the retirement account was built out of employment income earned during a period of non-residence, both fall within Serial No. 2 of the Table in section 133. A single fee covers the entire declaration, comprising every asset and every year of default, subject to the ceiling of ₹5 crore in the aggregate.

A substantial part of the working is already available. Valuation under the Scheme is to be undertaken as on 31 March 2026 and not as at the years of default, with the result that the workings prepared for the Schedule FA disclosure in AY 2026-27 can largely be carried over. The disclosures made in AY 2025-26 and AY 2026-27 additionally serve as evidence of acquisition, cost and holding history for the purposes of the Annexure to Form 1.

A practical consideration should also be noted. A Schedule FA disclosure in AY 2025-26 reflecting a substantial holding of foreign shares and a retirement account balance places on record the existence of those assets and raises the question of the year of their acquisition. The recent disclosure therefore tends to draw attention to the earlier omission.

Categories of declaration under section 133

The Table appended to section 133 sets out two serial numbers, each comprising two limbs. The applicable category is determined by the facts and is not a matter of election. It is nevertheless the first classification to be made, since both the amount payable and the applicable ceiling turn upon it.

Limb 2(b) is of particular relevance. Restricted stock units vesting while the assessee was resident in India are brought to tax as a perquisite forming part of salary. That income has accordingly been offered to tax under the Income-tax Act, 1961, and the shares received constitute an asset acquired out of income so offered. Where such shares were not reported in Schedule FA, the case falls within Serial No. 2(b) and the amount payable is a fee of ₹1 lakh rather than 60 per cent of value.

A retirement account accumulated out of employment income earned abroad during a period of non-residence falls within Serial No. 2(a), with the same consequence.

Three further points require emphasis.

The fee of ₹1 lakh is a single fee for the declaration and is not charged for each asset or for each year of default. Item 6 of Part D of Form 1 requires the declarant to enter either “Nil” or “₹1 lakh”, which places the position beyond doubt. A returning non-resident holding a retirement account, a rollover account, a brokerage account containing vested shares, a health savings account and a legacy bank account, in respect of eight assessment years, pays the fee once, provided the aggregate value as on 31 March 2026 remains within ₹5 crore.

The ceilings apply to the aggregate, and it is not open to a declarant to select a part of the pool in order to remain within the limit. Where the eligible pool of foreign assets is valued at ₹6 crore, a declaration of ₹5 crore is not permissible, and Category 2 becomes unavailable in respect of the entire declaration. No proportionate or marginal relief is provided.

The two categories may coexist in a single declaration. Rule 5(1) applies the ceilings of ₹1 crore and ₹5 crore separately. Foreign shares may accordingly be declared under Serial No. 2 and, in the same Form 1, the unreported dividends arising on those shares may be declared as undisclosed foreign income under Serial No. 1.

Absence of foreign tax credit under the Scheme

This aspect is frequently overlooked and may alter the recommendation materially.

The charge of 30 per cent, together with the further amount equal to 100 per cent of that tax under Category 1, is computed on the gross value or income. The Scheme makes no provision for credit in respect of tax paid outside India. Where, for instance, tax has been withheld on dividends at the rate provided in the applicable double taxation avoidance agreement, no credit for that withholding is available within a computation under the Scheme.

Foreign tax credit can be claimed only through the updated return, by furnishing an updated return together with Form 67 under Rule 128. Where the default relates to undisclosed foreign income, as distinct from a failure to report an asset, the two routes require comparison before a recommendation is made.

Comparison between the Scheme and an updated return

The two routes are not interchangeable and serve different purposes. Where the substantive exposure arises under the Black Money Act in respect of an undisclosed asset, the Scheme is ordinarily the safer course. Where the default is one of reporting taxable income on which substantial foreign tax has been paid, an updated return with Form 67 may prove less expensive, although the position under the Black Money Act would remain unresolved. In certain cases the appropriate course is a combination of the two, namely a declaration under Category 2 in respect of the asset and an updated return in respect of the income.

Illustrations

Illustration 1: salaried employee holding vested foreign shares

Vested restricted stock units of a listed foreign parent are held through a stock plan account. The value as on 31 March 2026 is ₹1.85 crore. The perquisite arising on each vesting was brought to tax in salary and is reflected in Form 16 for AY 2021-22 to AY 2026-27. Schedule FA was not furnished. Dividends aggregating approximately ₹6 lakh were credited to the linked cash account and were not reported, and withholding tax at 25 per cent was suffered thereon.

The shares fall within Serial No. 2(b), having been acquired out of income offered to tax and not having been declared in Schedule FA. The value of ₹1.85 crore is within the ceiling of ₹5 crore and the fee payable is ₹1 lakh.

The dividends may be dealt with in either of two ways. If declared under the Scheme as undisclosed foreign income, the amount payable is 30 per cent of ₹6 lakh, namely ₹1.80 lakh, together with a further ₹1.80 lakh, aggregating ₹3.60 lakh, with no credit for the ₹1.50 lakh of foreign tax withheld. If regularised through an updated return supported by Form 67, tax is payable at the applicable slab rates with credit for the foreign tax, together with additional tax under section 140B; this is frequently the less expensive course, although it does not carry immunity under the Black Money Act in respect of the income. The comparison depends upon the applicable slab, the assessment years still available for an updated return, and the extent of exposure attaching to the income stream as distinct from the asset.

A related question arises on these facts, namely whether the unreported dividend, having been credited to the same account, affects the character of the shares themselves. In our view it does not, the shares having been acquired out of perquisite income brought to tax and their character being determined at the point of acquisition. The position should nevertheless be reasoned and recorded on file before Form 1 is filed.

Illustration 2: returning non-resident holding a retirement account

The assessee was employed outside India for eight years as a non-resident, returned to India during FY 2022-23 and became resident and ordinarily resident in FY 2024-25. He holds a retirement account of USD 310,000, a rollover account of USD 84,000 and a bank account of USD 12,000. Schedule FA was not furnished for AY 2025-26 or AY 2026-27, relief under section 89A was not claimed and Form 10-EE was not filed.

The aggregate value as on 31 March 2026, converted at approximately ₹87.5 per USD, is about ₹3.55 crore, which is within the ceiling of ₹5 crore. All three assets were acquired out of income accruing or arising outside India during a period of non-residence and fall within Serial No. 2(a). The fee payable is ₹1 lakh, once, in respect of all three assets and both assessment years.

The Scheme does not determine the basis on which the retirement account is to be taxed prospectively. Whether the accretion is to be offered on an accrual basis, or deferred by exercising the option under section 89A read with Rule 21AAA by filing Form 10-EE, is a separate question governed by its own time limits and requires to be addressed alongside the declaration.

Illustration 3: legacy foreign bank account

A salary account opened in 2016 and never closed has received deposits aggregating AED 620,000 since inception, and carries a present balance of AED 95,000. The account was not disclosed. The salary was earned during a period of non-residence.

Under Rule 3(1)(e) the value of a bank account is the sum of all deposits made from the date of opening of the account until 31 March 2026. It is neither the closing balance nor a value as at a point of time. The value in this case is accordingly approximately AED 620,000, or about ₹1.48 crore, and not ₹22 lakh.

If the deposits are traceable to salary earned as a non-resident, the case falls within Serial No. 2(a), the applicable ceiling is ₹5 crore and the fee is ₹1 lakh. If the source is not explained, the case falls within Serial No. 1, the value of ₹1.48 crore exceeds the ceiling of ₹1 crore, and the assessee is not eligible to declare under the Scheme.

Illustration 4: assessee outside the Scheme

Foreign mutual fund units acquired in FY 2020-21 are valued at ₹2 crore on the valuation date and foreign shares acquired in FY 2022-23 at ₹2.5 crore, aggregating ₹4.5 crore. The assessee is eligible under Serial No. 2.

If the facts are altered to foreign immovable property valued at ₹3 crore and foreign securities at ₹3.5 crore, the aggregate is ₹6.5 crore. The assessee is not eligible, the Scheme is unavailable, and an alternative approach is required.

Valuation of assets under Rule 3

The general rule under Rule 3(1) is that fair market value is the higher of the cost of acquisition and the price which the asset would ordinarily fetch if sold in the open market on 31 March 2026, supported where appropriate by a report from a valuer recognised by the Government of the country in which the asset is located. Where such valuation is not carried out, the indexed cost of acquisition is deemed to be the fair market value.

The deemed fair market value provision is of considerable practical utility, since for most classes of asset the assessee may dispense with a foreign valuation altogether. It does not extend to three items, namely quoted shares, which have an ascertainable market price, bank accounts and an interest in a firm, association of persons or limited liability partnership.

Evidence in respect of retirement and custodial accounts

Retirement accounts, health savings accounts, superannuation balances and custodial accounts fall within the residuary clause, Rule 3(1)(g). The open-market limb of that clause does not require a formal report from a foreign valuer, and a document evidencing market value as on 31 March 2026, such as a custodian or brokerage statement, will support the figure adopted. Where no such document is obtained, the indexed cost of acquisition continues to be available as deemed fair market value.

In practical terms, a declaration in respect of a foreign retirement account does not require a valuation to be commissioned abroad; the account statement as on 31 March 2026 is the working document.

The two valuations for which no shortcut is available

Bank accounts, under Rule 3(1)(e). The value is the aggregate of all deposits made from the date of opening of the account until 31 March 2026. Two exclusions operate, in each case to prevent the same amount being counted twice. Where the account, or a part of it, was declared earlier under Chapter VI of the Black Money Act and the value so computed was charged to tax and penalty under that Chapter, only deposits made since the date of that declaration are aggregated. Further, a deposit made out of the proceeds of an earlier withdrawal from the same account is excluded.

Interest in a firm, association of persons or limited liability partnership, under Rule 3(1)(f). The net assets are determined as (A + B − L) as on 31 March 2026, computed in the manner prescribed for unquoted equity shares. The portion of the net assets equal to the capital is allocated among the partners or members in the proportion in which capital has been contributed. The residue is allocated in accordance with the clause of the agreement governing distribution on dissolution or, in the absence of such a clause, in the profit-sharing ratio. The exercise requires the balance sheet of the foreign entity and the partnership or association agreement, and is invariably the most demanding item on a declaration.

Reinvestment and assets transferred before the valuation date

Rule 3(3). Where a new asset has been acquired out of the consideration received on the transfer of an old asset, or out of a withdrawal from a bank account, the fair market value of the old asset or of the bank account is reduced by the amount of the consideration invested in the new asset. The same principle applies where undisclosed foreign income has been invested in an undisclosed asset, in which case the income is reduced by the amount so invested and the asset is separately valued at its own fair market value.

The illustration furnished by the Board may be noted. A house property H1 was purchased for ₹20 lakh, sold for ₹25 lakh and the consideration deposited in a bank account, from which ₹30 lakh was subsequently withdrawn to purchase house property H2. The fair market value of H1 is the higher of ₹20 lakh and ₹25 lakh, reduced by ₹25 lakh invested, and is accordingly Nil. The fair market value of the bank account is ₹70 lakh reduced by ₹30 lakh, namely ₹40 lakh. The fair market value of H2 is the higher of ₹30 lakh and ₹50 lakh, namely ₹50 lakh.

Rule 3(2). An asset other than a bank account which was transferred before 31 March 2026 remains within the scope of the declaration and is valued at the higher of its cost of acquisition and the sale price. Where the transfer was without consideration or for inadequate consideration, the fair market value is the higher of the cost of acquisition and the fair market value on the date of transfer. A prior disposal accordingly does not discharge the obligation to declare, and documents relating to historic sales require to be retrieved.

Conversion into Indian currency

In respect of assets, Rules 3(4) and 3(5) apply. Where the value is determined in a currency designated by the Reserve Bank of India under the Foreign Exchange Management (Deposit) Regulations, 2016, conversion is at the reference rate of the Reserve Bank of India on 31 March 2026. In any other case, the value is first converted into United States Dollars at the rate specified by the central bank of the country or jurisdiction in which the asset is located, or by another bank regulated under the laws of that country, and thereafter into Indian currency at the reference rate of the Reserve Bank of India on 31 March 2026.

In respect of income, these rules do not apply. Rule 115 of the Income-tax Rules, 1962 continues to govern, and conversion is at the telegraphic transfer buying rate of the State Bank of India. Application of the Reserve Bank reference rate to an income figure is a common error.

Variance of twenty per cent

Rule 5(2) provides that in the case of an asset other than a bank account, where the fair market value declared in Form 1 is at variance with the value determined by the Assessing Officer or any other income-tax authority in the course of any assessment or inquiry, the declaration shall not be regarded as invalid or void on the ground of misrepresentation, suppression of facts or furnishing of false particulars merely by reason of such variance, provided the variance does not exceed twenty per cent of the value declared.

The protection extends to the validity of the declaration in the case of an honest difference in valuation, and is of assistance where reliance is placed on deemed fair market value or on a reasonable estimate. It does not extend to bank accounts, which are expressly excluded, it does not sanction deliberate under-declaration, and it does not protect against the other grounds of invalidity contained in section 134(3).

Procedure and timelines

Payment may be made in instalments. Interest at the rate of one per cent for every month or part of a month is payable on any amount paid after the initial period of two months, subject to a maximum of two further months.

Two consequences require attention before a declaration is filed.

Where the amount is not paid within the outer limit of four months, the declaration is to be treated as void and is deemed never to have been made. The obligation is not discharged by payment alone; Form 3 must be furnished within the same period.

Section 138 provides that no amount paid under the Scheme shall be refundable. The client’s ability to make payment should accordingly be ascertained before Form 1 is filed.

Illustration of the payment timeline

An undisclosed foreign bank account is valued at ₹80 lakh as on 31 March 2026, so that the amount payable under Serial No. 1 is ₹48 lakh. The order in Form 2 is passed on 22 September 2026, and the end of the month of the order is 30 September 2026.

• Payment on 25 November 2026: ₹48 lakh, without interest.
• Payment on 17 December 2026: delay of one month beyond 30 November 2026; interest at 1 per cent, being ₹48,000; total ₹48,48,000.
• Payment on 23 January 2027: delay of two months; interest at 2 per cent, being ₹96,000; total ₹48,96,000.
• Payment on 5 February 2027: beyond the outer limit of 31 January 2027; the benefit of the Scheme is not available.

It may be noted that the illustration as printed in the Gazette carries the year 2026 against the January and February dates in the last two limbs. Read with the outer limit of four months, these appear to be intended as 2027.

Immunity: scope and limitations

Consequences of a valid declaration

• Immunity from the levy of any further tax or penalty, and from prosecution, under the Black Money Act, 2015, in respect of the income or asset declared, for the previous year ending 31 March 2026 or any earlier previous year, under section 139.
• Exclusion of the income declared, or the amount of investment in the asset declared, from the total income of the declarant under the Income-tax Act, 1961 and the Black Money Act, 2015, under section 136.
• Conclusiveness of the order in Form 4 as to the matters stated therein, under section 135(6). The significance of this is greater than it appears. Whether a penalty under section 43 would in fact have been levied on a given set of facts is presently uncertain, Benches having differed on materially similar facts. A conclusive order removes that uncertainty, and the cost of contesting a penalty through assessment, first appeal and the Tribunal will seldom be less than the amount payable under the Scheme.
• Where assessment proceedings are pending in respect of the income or asset declared, the Assessing Officer is required to take the declaration into account while finalising the assessment order, under section 141.

Matters not covered

Immunity is confined to the Black Money Act. This is a material departure from the scheme contained in Chapter VI of that Act, under which immunity extended also to the Income-tax Act, the Wealth Tax Act, the Foreign Exchange Management Act, the Companies Act, the Prevention of Money-laundering Act and the Customs Act. Where the foreign holding carries exposure under FEMA, whether by reason of an overseas investment made otherwise than through a permissible route, an overseas direct investment structure, or a remittance in excess of the limit under the Liberalised Remittance Scheme, that exposure survives the declaration and requires to be addressed separately by way of compounding before the Reserve Bank of India.

No relief may be claimed in respect of completed assessments. Section 137 precludes any claim for rectification or revision of an assessment already made, and any claim for set off or relief in any appeal, reference or other proceeding relating to such assessment.

No credit for foreign tax, as set out above.

No effect on prospective compliance. Schedule FA, Schedule FSI, Schedule TR, Form 67 and, where applicable, Form 10-EE require to be furnished correctly from AY 2027-28 onwards. A declaration under the Scheme followed by a further omission of Schedule FA would place the assessee in a materially worse position.

Non-application of the Scheme

Under section 140, the Scheme does not apply in respect of any income or asset which represents, directly or indirectly, proceeds of crime in respect of which proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002, or in respect of any income or asset relating to an assessment year for which assessment proceedings have been completed under the Black Money Act, 2015.

The benefit is also lost where the declarant furnishes false material particulars, contravenes any condition of the Scheme, files beyond the prescribed period, or fails to make payment within the time allowed.

Documents required

• Returns of income filed for all relevant assessment years, together with computations.
• Form 16 for each year in which perquisite arising on restricted stock units or an employee stock purchase plan was brought to tax.
• Complete broker statements from the date of grant to 31 March 2026, covering grant, vesting, sale to cover, sale and dividend records.
• Grant letters and the governing plan documents.
• Statements of retirement, health savings and superannuation accounts as on 31 March 2026, together with the history of contributions including employer contributions.
• Bank statements from the date of opening of the account, the valuation rule requiring the aggregate of deposits since inception.
• Purchase deed, transfer documents and valuation report in respect of foreign immovable property.
• Documents relating to any foreign asset transferred before 31 March 2026.
• Passport with visa endorsements, and a computation of days of physical presence in India for the current financial year and the four preceding years. Passport particulars are required in Form 1 wherever non-resident status is claimed for any year.
• Foreign taxpayer identification number or equivalent, and country of tax residence for each relevant year.
• Foreign tax documents, such as Form W-2, Form 1042-S, Form 1099-DIV and Form 1099-B, or their equivalents.
• Records of remittances under the Liberalised Remittance Scheme and Forms 15CA and 15CB, where the asset was funded from India.
• Income-tax portal credentials.

Frequently asked questions

Do I need to declare at all?

Q1. My foreign assets are small, under ₹20 lakh. Do I need FAST-DS? Often not. Since 1 October 2024, foreign assets other than immovable property are outside the ₹10 lakh penalty if their total value stays within ₹20 lakh. But check four things: is there foreign income you never offered to tax, is there property abroad, did the total cross ₹20 lakh at any point in the year, and do any of the missed years fall before 1 October 2024. A yes to any of these means you should look at declaring.

Q2. Can I simply file an updated return instead? They do different things. An updated return lets you offer income to tax and claim credit for foreign tax through Form 67, but gives no protection from penalty or prosecution under the Black Money Act. FAST-DS gives that protection and a final order, but no foreign tax credit. If your problem is an unreported asset, the Scheme is usually safer. If it is unreported income on which you already paid heavy foreign tax, an updated return may cost less.

Q3. Will I get credit for tax I already paid abroad? No. The Scheme charges 30 per cent on the gross amount, with no credit for foreign tax.

Q4. Does declaring protect me under FEMA? No. The protection is only under the Black Money Act. Any FEMA issue, such as an overseas investment outside the permitted route or an LRS breach, has to be compounded separately with the RBI.

Who can declare

Q5. Who is eligible? Anyone who was resident in India in the year the foreign asset was acquired, or in the year the foreign income arose, and who either did not file a return, or filed one without disclosing the asset or income.

Q6. I am an NRI now. Can I still declare? Yes, so long as you were resident in India in the year you acquired the asset or earned the income. The same applies if you are currently RNOR. Your residential status is stated year by year in Form 1, not once for the whole declaration.

RSUs, ESPP and foreign shares

Q7. My employer already taxed my RSUs. So why is there a problem? Because paying tax and reporting the asset are two separate duties. The perquisite tax settles your income tax. Schedule FA settles a different obligation under the Black Money Act, and the penalty for missing it does not depend on any tax being unpaid.

Q8. What will it cost to regularise my RSUs? Usually a flat ₹1 lakh for the whole declaration, covering every asset and every year you missed, provided your total foreign assets are within ₹5 crore. Because the shares came from income already taxed in India, they fall under Category 2 and not the 60 per cent Category 1 charge. Getting this classification right is the difference between ₹1 lakh and several lakhs.

Q9. My RSUs were granted while I was working abroad. Does that change anything? No, the cost is the same ₹1 lakh. Those shares came from income earned while you were a non-resident, which falls under the other limb of Category 2.

Q10. I already sold my shares. Do I still have to declare them? Yes. Shares sold before 31 March 2026 are still declarable, valued at the higher of what you paid and what you sold them for. Selling does not undo the years you failed to report.

Q11. How do I value my foreign shares? Take the higher of your cost and the average of the highest and lowest quoted price on 31 March 2026. If there was no trading that day, use the last day it traded. The indexed cost shortcut is not available for listed shares.

Q12. I never reported dividends on my RSU shares. What happens to those? The dividends are separate from the shares. They are undisclosed foreign income, taxed at 60 per cent under Category 1 with no credit for US withholding. The alternative is an updated return with Form 67, where the credit is available. The shares themselves stay in Category 2. Compare the two on your numbers before choosing.

Q13. Does this apply to ESPP shares as well? Yes, exactly as for RSUs. The discount was taxed as a perquisite, so the shares came from income already offered to tax.

Q14. I started filling Schedule FA from AY 2025-26 but not before. Am I covered now? Only for AY 2025-26 onwards. Each year is judged separately, so the earlier omissions still stand. And since the ₹20 lakh protection only began on 1 October 2024, shares and retirement accounts held in the earlier years had no cover at all on the plain wording of the law.

Q15. Can I just revise my old returns to add Schedule FA? No. Revised returns are time-barred for those years, and an updated return is allowed only where extra tax becomes payable, which a Schedule FA correction does not create. FAST-DS is the route the law provides for exactly this situation.

401(k), IRA and other retirement accounts

Q16. Do I have to report my 401(k) in Schedule FA? Yes. Many people assume that because section 89A lets you defer the tax, the reporting is deferred too. It is not. Reporting and taxation are independent.

Q17. What does it cost to declare an undisclosed 401(k)? ₹1 lakh, once, covering the account and every year you missed, whether the money came from US salary earned as a non-resident or from income taxed in India.

Q18. Do I need a US valuer? No. A retirement or custodial account is a residuary asset, and your custodian or broker statement showing the value on 31 March 2026 is enough. Take the higher of that figure and the amount invested, including employer contributions.

Q19. Does declaring settle how my 401(k) is taxed going forward? No. Whether you tax the growth each year or defer it by filing Form 10-EE under section 89A is a separate decision with its own deadline.

Q20. My 401(k) has been growing through dividends and gains. Is that taxable? Yes, for the years you were resident and ordinarily resident, and only to the extent the growth was actually realised, meaning distributions credited and gains booked on switches. A rise in market value that you have not realised is not income. This growth is separate from the account itself and goes into Category 1 at 60 per cent.

Q21. Should I declare that growth at the old income figure or at its 31 March 2026 value? The point is unsettled. One view is that the reinvested income bought more units, so those units are declared at their 31 March 2026 value, which is how the CBDT works its own example. The other view is that nothing was transferred or withdrawn, so the growth stays as income at the original amount. We prefer the 31 March 2026 basis: it gives the higher figure, matches the CBDT example, and if the other view is right you have simply paid more and obtained a final order, whereas the reverse leaves you with an under-declaration.

Q22. Can that choice affect my eligibility? It can. Using 31 March 2026 values pushes the total up, and Category 1 is capped at ₹1 crore with no partial relief. If one basis takes you past the cap and the other does not, the choice decides eligibility itself and should be made deliberately.

Q23. I never filed Form 10-EE. Can I fix it now? Not for the past years, as there is no provision to elect late. Those years are taxed on a yearly basis and dealt with as above. Going forward, file Form 10-EE by the return due date for AY 2027-28, provided you opened the account while you were a non-resident and resident in the USA, UK or Canada. The choice cannot be reversed later.

Q24. What about an HSA, an ISA, CPF or Australian superannuation? All are foreign assets needing Schedule FA disclosure, and all can be covered by a declaration on the same basis.

Foreign bank accounts and property

Q25. My foreign account is nearly empty. Why is the value so high? Because the Scheme values a bank account at the total of every deposit since you opened it, not the closing balance. Money that merely passed through the account still counts. Only re-deposits of your own earlier withdrawals are left out.

Q26. How is foreign property valued? The higher of your cost and the market value on 31 March 2026 from a valuer recognised in that country. If you do not get a valuation, the indexed cost is taken as the value.

Q27. I sold one property and bought another. Am I counted twice? No. The value of the old asset, or of the account the money passed through, is reduced by whatever you reinvested.

Cost, process and deadlines

Q28. Is the ₹1 lakh charged per asset or per year? Neither. It is one fee for the entire declaration.

Q29. My assets are worth ₹6 crore. Can I declare just ₹5 crore? No. The limit applies to your total holding. Cross it and Category 2 closes for the whole declaration.

Q30. What documents do I have to upload? Proof of how you acquired the asset or earned the income, and a valuation report if you obtained one. For retirement and custodial accounts a broker or custodian statement is enough. Passport details are needed for any year you claim non-resident status.

Q31. How long do I get to pay? Two months from the end of the month you receive the Form 2 order, and up to two months more with interest at 1 per cent a month. The absolute limit is four months. You can pay in parts.

Q32. What if I miss the payment deadline? The declaration becomes void and is treated as never made, and nothing you have already paid comes back. Paying is also not enough on its own: Form 3 must be filed within the same window.

Q33. What if the department values my asset differently? An honest difference of up to 20 per cent will not invalidate your declaration. This does not apply to bank accounts, and it does not cover deliberate under-declaration.

Q34. I have a scrutiny notice. Can I still declare? Yes, unless Black Money Act proceedings for that year are already complete. Where an assessment is pending, the officer must take your declaration into account. Get advice before filing, because the order in which things are done matters. See our note on what happens after a scrutiny notice under section 143(2).

Our services in relation to the Scheme

The firm has for several years been engaged in this area of work, comprising the preparation of Schedule FA for holders of restricted stock units and employee stock purchase plan shares across the principal broker platforms, determination of residential status for professionals returning to India, filing of Form 67 and Form 10-EE, and representation in proceedings under sections 142(1) and 143(2) involving foreign assets. Internal standard operating procedures have been developed covering settled positions on the preparation of Schedule FA, lot-wise valuation, currency conversion and the holding period applicable to foreign securities.

An engagement in relation to the Scheme would ordinarily comprise:

• examination of the threshold question, namely whether the small-value exemption in sections 42 and 43 renders a declaration unnecessary;
• where a declaration is required, a comparison between the Scheme and an updated return supported by Form 67, made on the figures applicable to the assessee;
• analysis of eligibility across all relevant previous years, including determination of residential status year-wise on the basis of days of physical presence;
• classification of each asset between Serial No. 1 and Serial No. 2, with the reasoning recorded on file;
• preparation of the valuation working as on 31 March 2026, lot-wise and asset-wise, applying the Reserve Bank reference rate to assets and Rule 115 with the State Bank telegraphic transfer buying rate to income;
• preparation and electronic filing of Form 1 together with the Annexure and supporting uploads;
• monitoring of the order in Form 2, computation of interest where applicable, and filing of Form 3 with proof of payment within the prescribed period; and
• regularisation of prospective compliance in relation to Schedule FA, Schedule FSI, Schedule TR, Form 67 and Form 10-EE.

Related matters on which the firm advises include scrutiny and faceless assessment proceedings, penalty proceedings under section 270A and immunity under section 270AA, and taxation and compliance for non-residents and returning Indians.

The period available is short, and the valuation of bank accounts and of interests in foreign firms is more time-consuming than is generally anticipated. A declaration filed in the closing days of December 2026 on an unverified valuation is a less satisfactory outcome than no declaration at all, since section 134(3) renders a declaration void where any material particular is found to be false at any stage. The working papers should accordingly be taken up without delay.

Balakrishna & Co., Chartered Accountants 37+ years of experience in complex tax matters No. 24, 3rd Floor, Above State Bank of India, 10th Cross, Wilson Garden, Bangalore – 560027 Phone: +91 86182 59712 Email: prakasha@balakrishnaandco.com

Disclaimer

This article is for general information only and is not a professional opinion or advice to be acted upon, and reading it or writing to us does not create a client relationship. The Scheme is recent legislation on which there is no judicial interpretation as yet, and several of the positions taken here are open to a different view; the illustrations are simplified and the figures indicative. Please verify the current position and obtain advice on the facts of your own case before filing any declaration, which once made cannot be reversed or refunded. Balakrishna & Co., Chartered Accountants accepts no liability for any action taken on the basis of this article.