Undisclosed foreign income? Here’s how new tax window can help

Own mutual funds, stocks, or property overseas but haven’t declared them in your income tax returns? Taxpayers can now disclose foreign income and assets up to Rs 5 crore in a one-time voluntary disclosure window provided by the Income Tax Department from August 16 to December 31 under the Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST-DS).

An assessee can declare foreign income and assets that have never been taxed before up to a maximum limit of Rs 1 crore. An assessee can also disclose assets located abroad up to Rs 5 crore that were taxed or were acquired when the taxpayer was a non-resident but did not declare them in the income tax returns (ITR).

In her Budget speech in February, Union Finance Minister Nirmala Sitharaman had said that the government will introduce a one-time, six-month foreign asset window to address practical issues of small taxpayers like students, young professionals, tech employees, relocated NRIs and others, for disclosing income or assets below a certain size.

What are the types of disclosures allowed under FAST-DS?

The scheme applies to two broad categories: i) undisclosed foreign income or asset located outside India up to Rs 1 crore; ii) asset up to Rs 5 crore located outside India, which was already offered to tax or was acquired when the assessee was a non-resident, but not declared in the relevant schedule of the ITR.

The first category involves disclosure of undisclosed and never-taxed-before income, so it is in a way a window to disclose black money, but only up to Rs 1 crore. An assessee needs to pay 30% of fair market value (FMV) of assets or 30% of undisclosed income as tax and 30% as additional income tax in lieu of penalty in order to get immunity from prosecution.

The second category is for those taxpayers who want to declare assets located abroad till Rs 5 crore that are from taxed money or acquired by a non-resident but not declared in the ITR earlier by paying a fee of Rs 1 lakh. Income tax officials said the FAST-DS is helpful for such disclosures as non-disclosure would have otherwise resulted in a Rs 10 lakh fine.

On making a valid declaration and payment under FAST-DS, immunity will be provided from any further tax or penalty, and from prosecution, under the Black Money Act, 2015, in respect of the income or asset so declared.

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What are the foreign income and assets covered under the scheme?

Taxpayers can disclose their foreign bank accounts, immovable property, jewellery, artistic work, shares, securities or any other asset or income. Unreported restricted stock units (RSUs) or Employee Stock Option Plan (ESOPs), primarily valid for tech sector employees, can also be reported under the scheme.

The valuation limits under the scheme, however, should not be viewed as slabs. Say, for instance, the value of undisclosed foreign income is Rs 1.5 crore, then the assessee won’t be eligible to disclose it in the first category of FAST-DS as it’s not a slab but an outer limit of Rs 1 crore. Similarly, if the foreign asset is of Rs 6.5 crore in value, then the assessee will be ineligible to disclose under the second category which has a limit of Rs 5 crore.

The scheme will not apply if any income or asset, directly or indirectly, represents proceeds of crime in respect of which proceedings have been initiated, or are pending, under the Prevention of Money-laundering Act, 2002; or any income or asset relating to an assessment year for which assessment proceedings have already been completed under the Black Money Act, 2015.

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What information on foreign assets does the Income Tax Department already have?

Given that the Income Tax Department already has a lot of information on foreign assets through information exchange mechanisms with other countries, experts said the FAST-DS is like an indirect nudge to the taxpayers to disclose their foreign assets correctly. The department already has CRS data, so anyone with unreported RSUs or ESOPs from an MNC employer should look at this seriously, said Chirag Chauhan, founder of CA Chauhan & Co, a chartered accountancy firm in Mumbai.

Amit Agarwal, Partner-M&A Tax, Nangia & Co, said the FAST-DS opens a narrow but useful window for taxpayers to regularise certain historical gaps relating to foreign assets and income. “Importantly, it works alongside the existing foreign-asset reporting requirements — taxpayers will continue to be required to disclose their foreign holdings appropriately in their annual tax returns,” he said.

The details about foreign assets and income are shared between the countries in line with international reporting frameworks such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), aimed to tackle tax evasion by increasing transparency and cooperation among tax authorities globally. Under CRS and FATCA, India receives detailed information about financial accounts held by its residents in foreign jurisdictions, which includes account holder’s name, address, and tax identification number (TIN), account number and balance, income details such as interest, dividends, and other financial proceeds.

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Last month, the Income Tax Department had said that the CRS / FATCA information for a taxpayer will be part of his or her Annual Information Statement (AIS), which is a comprehensive online report provided by the Income Tax Department that displays a complete consolidated view of a taxpayer’s financial transactions, income sources, tax payments, and tax-deducted details for a specific financial year on the e-filing portal. The Department had said that information pertaining to calendar years 2022, 2023 and 2024 had been displayed in the AIS and information for 2025 will also be displayed once it is received in the month of September / October.

How will the valuation of assets be determined?

The valuation date is March 31, 2026 and the FMV of assets proposed to be declared must be computed as on this date. FMV will be the higher amount between the cost of acquisition, and the price the asset would ordinarily fetch if sold in the open market on the valuation date, ideally supported by a report from a valuer recognised by the government (or its agency) of the country where the asset is located. Where such market valuation is not carried out, the indexed cost of acquisition will be taken as the FMV.

For quoted shares and securities, higher of the cost of acquisition and the average of the lowest and highest price quoted will be the FMV. For unquoted equity shares, FMV will be the higher of the cost of acquisition and the value computed by a prescribed formula based on the book value of specified assets, the FMV of bullion, jewellery, shares, securities and immovable property, liabilities (excluding specified items such as paid-up capital and reserves), and the paid-up value of the equity shares.

For interest in a foreign partnership firm, association of persons, or LLP, the FMV will be the portion of net assets equal to the capital contributed is allocated among partners or members in the ratio of capital contribution.

How to make the disclosure and payment?

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A declaration for any asset or income has to be made electronically in Form 1 to the income tax authority under the two categories where the aggregate value of undisclosed income and assets do not exceed Rs 1 crore or Rs 5 crore, depending on the category under which the assets are declared.

Other than a bank account, the declaration for any asset will not be treated as invalid or void on the grounds of misrepresentation, suppression of facts, or furnishing of false material particulars, only if the variance between the FMV and the value determined by the assessing officer or any other income tax authority during any assessment or inquiry does not exceed 20%.

The payment of the amount payable under the scheme has to be made within two months of the order passed by the income-tax authority. If the payment is after two months but within the additional period not exceeding two months, then a simple interest of 1% on the total amount payable has to be paid for every month or part of a month of delay. “The maximum additional period allowed is four months from the end of the month in which the original payment order (Form 2) was passed. If payment is not made within this outer limit, the benefit of the Scheme ceases to be available for that declaration,” the Income Tax Department said.