Introduction
The Ministry of Finance (Department of Revenue), through the Central Board of Direct Taxes, has notified the Foreign Assets of Small Taxpayers – Disclosure Scheme Rules, 2026 by Notification No. 114/2026 [G.S.R. 732(E)] dated 14 August 2026. The Central Government framed these rules under section 143 of the Finance Act, 2026 (4 of 2026). They supply the procedure for the one-time disclosure window created by Chapter IV of that Act, which lets taxpayers with relatively small undisclosed foreign assets or foreign income regularise their position and obtain immunity under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
The rules came into force on 16 August 2026, and the “last date” for the scheme is 31 December 2026. Anyone who wants to use the Foreign Assets Disclosure Scheme, 2026 therefore has a fixed window, and this article explains how the scheme works within it. It covers who qualifies, what a declaration costs, how assets are valued, and what protection a valid declaration gives.
The Legislative Framework Behind the Disclosure Scheme
Chapter IV of the Finance Act, 2026 contains the substantive scheme. Section 133 sets out the eligible categories of assets and income, the amount payable and the conditions attached. Section 135 governs the orders and the payment timelines, and section 139 deals with the validity of declarations. The rules notified under CBDT Notification 114/2026 supply the machinery: valuation methods, prescribed forms, timelines for orders and the verification standards for electronic filing.
The rules borrow their vocabulary from several statutes. Any word not defined in the rules or in the Finance Act, 2026 takes its meaning from the Income-tax Act, 1961, the Income-tax Act, 2025 or the Black Money Act, 2015. “Indexed cost of acquisition” has the meaning given in section 48 of the Income-tax Act, 1961. The valuation date for every asset is fixed at 31 March 2026.
The rules also designate the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) as the “income-tax authority” for the scheme. In practice this means declarations are processed centrally and electronically, not by the taxpayer’s jurisdictional Assessing Officer.
Who Can Declare Undisclosed Foreign Assets Under the Scheme
The Table in section 133 of the Finance Act, 2026 creates two separate tracks for different kinds of default.
The first track (Serial No. 1 of the Table) covers undisclosed assets located outside India and undisclosed foreign income. In other words, it covers money and property that were never brought to tax. It is limited to cases where the combined value of the undisclosed income and the undisclosed assets does not exceed ₹1 crore.
The second track (Serial No. 2) covers a reporting failure rather than a tax failure. It applies in two situations. The first is where a foreign asset was bought out of income earned abroad while the person was a non-resident, but the person did not report it in the relevant schedule of the return after becoming resident. The second is where a foreign asset was bought out of income already offered to tax under the Income-tax Act, 1961, but was still left out of the relevant schedule. This track is available where the combined value of such assets does not exceed ₹5 crore.
The illustrations to rule 5 show how strictly these ceilings work. A foreign bank account worth ₹55 lakh plus foreign income of ₹25 lakh totals ₹80 lakh, so the case qualifies. A foreign property worth ₹90 lakh plus foreign income of ₹30 lakh totals ₹1.20 crore, and the taxpayer cannot use the scheme at all. Two items of foreign income can also be combined: ₹40 lakh and ₹50 lakh qualify, while ₹70 lakh and ₹80 lakh do not. Under the second track, a foreign mutual fund of ₹2 crore and foreign shares of ₹2.5 crore together qualify. A foreign property of ₹3 crore and foreign securities of ₹3.5 crore, totalling ₹6.5 crore, do not.
The ceiling is a test of eligibility, not a cap on the amount that can be declared. A taxpayer whose combined value goes over the limit cannot declare part of the holdings to stay under it. That taxpayer falls outside the scheme altogether.
Cost of Disclosure: Tax, Penalty and Fee
The two tracks are priced very differently, which reflects how serious each default is. Under the first track, the declarant pays tax at 30 per cent of the value of the undisclosed asset or income, plus a penalty equal to 100 per cent of that tax. The total therefore comes to 60 per cent of the declared value, and Part D of Form 1 calculates it in exactly that way.
The illustration to rule 4 works this out. Suppose a taxpayer has an undisclosed foreign bank account worth ₹60 lakh on 31 March 2026 and undisclosed foreign income of ₹20 lakh. The tax is ₹18 lakh on the account and ₹6 lakh on the income, giving ₹24 lakh, and the penalty is another ₹24 lakh. The total payable is ₹48 lakh.
The second track charges only a flat fee of ₹1 lakh, whatever the value of the assets, provided they stay within ₹5 crore. In the rule 4 illustration, a plot of land abroad bought in 2015 out of income earned as a non-resident is worth ₹3 crore on the valuation date. Because it was never reported after the owner became resident, it falls under the second track and costs a fee of ₹1 lakh. Form 1 makes the fee a single figure of either nil or ₹1 lakh. The fee is therefore charged once per declaration and is not multiplied by the number of assets.
Valuation of Undisclosed Foreign Assets Under Rule 3
Rule 3 gives the method for finding fair market value under section 131(1)(l) of the Finance Act, 2026. For most asset classes the value is the higher of two figures: the cost of acquisition, and the open-market price on 31 March 2026.
For bullion, jewellery, precious stones, artistic works, unquoted non-equity securities and immovable property, the open-market price may be supported by a report from a valuer recognised by the government of a foreign country or territory, or by one of its agencies. For immovable property, the valuer must be recognised by the government of the country where the property is located. If no such valuation is done, the indexed cost of acquisition is treated as the fair market value. This fallback saves the declarant the cost and effort of a foreign valuation, at the price of accepting an indexed figure.
Quoted shares and securities are valued at the higher of cost and the average of the lowest and highest prices on an established securities market on the valuation date. If the shares did not trade that day, the average for the last preceding trading day is used. An “established securities market” must be officially recognised and supervised by a governmental body and must have had annual trading of more than one billion US dollars in each of the three preceding calendar years. A share counts as “quoted” only if it trades in meaningful volume on an ongoing basis. That means trades on at least sixty business days in the prior calendar year, covering at least ten per cent of the average number of shares outstanding in that class.
Unquoted equity shares are valued on a net-asset basis. Start with the book value of the company’s ordinary assets, after removing tax paid net of refunds claimed and any unamortised deferred expenditure. Add the fair market value of its bullion, jewellery, artistic works, securities and immovable property. Subtract its real liabilities, leaving out paid-up capital, reserves, unascertained provisions and most contingent liabilities. The result is spread across the paid-up equity capital in proportion to the paid-up value of the shares held.
An interest in a partnership firm, an association of persons or a limited liability partnership is valued in stages. First, the entity’s net assets are worked out on the same basis. Next, the part of the net assets equal to capital is shared among the members in proportion to the capital each contributed. The remainder is then divided according to the dissolution terms of the partnership agreement or, if there are none, in the profit-sharing ratio. Any other asset is valued at the higher of its cost (or amount invested) and the price it would fetch in an arm’s-length sale on the valuation date.
Valuation of Foreign Bank Accounts
Foreign bank accounts are valued in a way that differs most from ordinary practice. A foreign bank account is not valued at its closing balance. Its value is the sum of all deposits made from the date the account was opened up to 31 March 2026, but any deposit made out of money previously withdrawn from the same account is left out. This captures every fresh inflow while stopping the same money from being counted twice when it moves in and out.
The rule’s illustration shows how this works. An account opened in 2010 received deposits totalling $6,000 over the years, with withdrawals of $700, $400 and $500 at different points. Later deposits are counted only to the extent that they go beyond the earlier withdrawals that were put back, so the value comes to $4,900. That figure is then converted into rupees as on 31 March 2026.
If the taxpayer had already declared the account under Chapter VI of the Black Money Act, 2015 and paid tax and penalty on it there, only deposits made after that earlier declaration are counted. In the second illustration this reduces the value to $3,100.
Transferred and Reinvested Assets
Rule 3(2) deals with assets sold before the valuation date. Such an asset is valued at the higher of its cost and the sale price. If it was transferred for no consideration or for too little, it is valued at the higher of its cost and its market value on the date of transfer.
Rule 3(3) prevents the same money from being counted twice where the proceeds of an old asset were reinvested in a new one. Suppose a house bought for ₹20 lakh is sold for ₹25 lakh, and the money goes into a foreign bank account. That account is later used to buy a second house for ₹30 lakh, which is worth ₹50 lakh on the valuation date. The first house is valued at nil, because its proceeds are already counted in the bank account. The bank account is reduced from ₹70 lakh to ₹40 lakh, and the second house is valued at ₹50 lakh.
The same reasoning applies to undisclosed income. Foreign income of ₹70 lakh, of which ₹60 lakh was used to buy property abroad, is counted as income of only ₹10 lakh. The property is counted at its full value of ₹80 lakh.
Currency Conversion
Assets valued in a currency on the Reserve Bank of India’s list of permitted currencies under the Foreign Exchange Management (Deposit) Regulations, 2016 are converted at the RBI reference rate on 31 March 2026. Other currencies are first converted into US dollars at the rate specified by the central bank of the country where the asset is located. If that central bank publishes no such rate, the rate of any other regulated bank in that country is used. The dollar figure is then converted into rupees at the RBI reference rate.
Procedure and Timelines Under the Disclosure Scheme
The declaration is filed electronically in Form 1 under rule 5. Form 1 asks for the declarant’s PAN, the previous year in which each asset was acquired or income earned, the declarant’s residential status in that year (resident, non-resident or resident but not ordinarily resident), and documents proving the acquisition. Passport details are required whenever the declarant claims to have been a non-resident in any year covered by the declaration. This matters most for the second track, which depends on income earned during non-residence.
Each asset is reported in a detailed annexure, which asks for:
- For gold: purity and weight.
- For diamonds of one carat or more: carat, cut, colour, clarity and country of purchase.
- For foreign bank accounts: the sum of all credits.
The declarant must also certify that section 140 of the Finance Act, 2026 does not apply to the declaration. Any misrepresentation or suppression of facts makes the declaration void. Under rule 9, the declaration is verified by digital signature where the declarant’s return must be filed that way, and otherwise through an electronic verification code.
The income-tax authority then passes an order in Form 2 under section 135(1), setting out the amount payable. The declarant must pay within two months from the end of the month in which the order is received. Under section 135(3), a further two months is allowed with interest at one per cent for each month or part of a month. Payment can be made in instalments. If the amount is still unpaid after this extended period, the declaration is treated as void and as never having been made.
The illustration to rule 7 takes an order dated 22 September 2026 with ₹48 lakh payable:
- Payment by 30 November 2026 attracts no interest.
- Payment on 17 December 2026 attracts ₹48,000 of interest.
- Payment in late January 2027 attracts ₹96,000.
- After 31 January 2027, the scheme’s benefit is lost entirely.
Once paid, the declarant files an intimation in Form 3 under section 135(4), giving challan details and the BSR code of the bank. Within one month from the end of the month in which that intimation is submitted, the authority issues Form 4 under section 135(5). Form 4 certifies the full and final settlement and declares the Form 1 declaration valid for the purposes of section 139. Forms 1, 2 and 3 are attached to Form 4 as a single document.
The Twenty Per Cent Valuation Variance Safeguard
Rule 5(2), read with section 134(3) of the Finance Act, 2026, gives an important measure of comfort to declarants. During a later assessment or inquiry, an Assessing Officer or other authority may arrive at a different fair market value for a declared asset. If the difference is no more than twenty per cent of the declared value, the declaration cannot be treated as void for misrepresentation, suppression of facts or false material particulars because of that difference alone.
The safeguard does not cover bank accounts. Their value comes from a calculation on bank records rather than from an opinion, so no tolerance is allowed. For immovable property, art, jewellery and unquoted shares, where valuations can reasonably differ, the twenty per cent margin protects a declarant who valued the asset in good faith.
Scope of Immunity Under the Black Money Act, 2015
The main benefit of the Foreign Assets Disclosure Scheme 2026 is set out in the Form 4 order. Subject to sections 130 to 144 of the Finance Act, 2026, a valid declaration with full payment grants immunity from any further tax, penalty or prosecution under the Black Money Act, 2015 for the assets and income declared. This immunity depends on several things. The declarant must be eligible under the section 133 thresholds, must certify that section 140 does not apply, must make a truthful declaration, and must pay in full within the time allowed. If any of these conditions fails, the declaration is void and the protection disappears with it.
Conclusion
The Foreign Assets of Small Taxpayers Disclosure Scheme Rules, 2026 give a time-bound route to compliance under the Finance Act, 2026, aimed at taxpayers with modest foreign holdings. Two features stand out. The first is the sharp difference in cost between the two tracks: 60 per cent of value for untaxed foreign wealth, against a flat fee of ₹1 lakh for assets bought from tax-paid or non-resident income that were simply not reported. The second is the detailed valuation rules, especially for bank accounts and reinvested assets.
The design rewards taxpayers whose only fault was failing to report, while making sure that wealth which was never taxed is regularised at a meaningful price. With 31 December 2026 fixed as the closing date and payment deadlines running into early 2027, the immunity under the Black Money Act, 2015 is available only to those who declare accurately and pay on time.
The Income Tax Act 2025: Reforming India’s Tax Regime also strengthens the framework for tax compliance and disclosure of foreign assets.
