The Central Board of Direct Taxes (CBDT) has notified the 'Foreign Assets of Small Taxpayers-Disclosure Scheme Rules, 2026', opening a one-time window for small taxpayers to voluntarily declare undisclosed foreign assets and income. The scheme takes effect on 16 August 2026 and offers immunity from prosecution, with relief structured around the value and nature of each disclosure.

What the Scheme Covers

The rules set out four categories of foreign holdings eligible for declaration: undisclosed assets located outside India; undisclosed foreign income; assets acquired abroad during a period of non-residence that were not declared upon becoming a resident; and assets purchased from already-taxed income but inadvertently omitted from the relevant schedule in an income tax return.

All declarations must be filed electronically in Form 1 on or before 31 December 2026. Once the Principal Director General or Director General of Income-tax (Systems) passes a determination order in Form 2, the declarant has two months to pay the assessed amount without interest. An additional two-month extension is available, subject to interest at 1 per cent per month on the outstanding balance — after which scheme benefits lapse and the declaration is treated as void.

Eligibility Thresholds and Tax Treatment

The scheme caps eligibility at two distinct thresholds. Declarations combining undisclosed foreign income and undisclosed assets must not exceed ₹1 crore in aggregate fair market value. A separate category — covering assets acquired during non-residence or from disclosed income but not reported in the return — is capped at ₹5 crore.

For disclosures within the ₹1 crore bracket, declarants must pay 30 per cent tax on the declared value plus a 100 per cent penalty on that tax, bringing the effective outgo to approximately 60 per cent of the declared value. The ₹5 crore category carries a flat fee — either nil for smaller disclosures or ₹1 lakh — with no tax or penalty component.

Valuation Rules

Fair market value is to be computed as on the valuation date of 31 March 2026, covering bullion, jewellery, artwork, quoted and unquoted shares, immovable property, and bank accounts. Bank account values are calculated as the sum of all deposits since the account was opened, or since a prior declaration under the Black Money Act if one was made. Foreign currency amounts are converted to Indian rupees using the Reserve Bank of India (RBI) reference rate on the valuation date.

Context and Significance

This comes amid sustained regulatory pressure on undisclosed offshore holdings, following the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which carried harsher penalties. The new scheme is notably more targeted — restricting eligibility to smaller portfolios and offering a structured, time-bound exit route. Notably, the immunity from prosecution is a significant carrot for taxpayers who may have inadvertently omitted foreign assets from their returns.

With the filing deadline set at 31 December 2026, eligible taxpayers have roughly four months to assess their position and take advantage of the window before the scheme closes.