[Opinion] Foreign Assets Disclosure Scheme 2026 | A Critical Appraisal

Venkatesh Pani, J V Kodhandapani & K Chakrapani – [2026] 183 taxmann.com 346 (Article)

1. Background, Legislative Intent and Context

In the Budget Speech for 2026, the Hon’ble Finance Minister noted that under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”), no penalty is leviable for non-disclosure of non-immovable foreign assets where the aggregate value is below Rs. 20 lakh, and proposed to extend immunity from prosecution in such cases with retrospective effect from 1 October 2024. The Memorandum explaining the Finance Bill, 2026 candidly acknowledges widespread legacy and inadvertent non-disclosures by small taxpayers, including ESOPs and RSUs earned during foreign employment, dormant foreign bank accounts of former students, savings and insurance policies of returning non-residents, social security accumulations, and assets held during overseas deputation. Information received under the Automatic Exchange of Information (AEOI) framework further evidences substantial non-compliance.

Against this backdrop, a time-bound disclosure scheme (“the Scheme”) is introduced to facilitate voluntary compliance through payment of tax or fee, coupled with limited immunity from penalty and prosecution under the Black Money Act. However, the design and mechanics of the Scheme raise significant interpretational, procedural and constitutional issues.

A transitional enforcement-backed disclosure window, using global data flows as leverage, aimed at converting non-compliance into revenue and regularisation before stricter action begins.

2. Revenue Orientation of a Compliance Scheme

Although styled as a compliance-facilitation measure, the Scheme is revenue-oriented in structure. It mandates tax at a flat rate of 30 per cent on undisclosed foreign income or assets, together with an additional levy equal to 100 per cent of such tax in specified cases. The effective fiscal burden often approaches 60 per cent of the asset value, without any provision for instalment or deferred payment. This structure raises doubts as to whether the Scheme genuinely encourages voluntary disclosure or primarily seeks accelerated tax collection.

3. Charging Provision and Scope of Declaration

Section 116 permits any person to make a declaration for any previous year in respect of income or assets referred to in section 117 where a return was not furnished, where assets or income were not disclosed in a furnished return, or where such income or asset has escaped assessment under section 147 of the Income-tax Act, 1961. While declaratory in form, the Scheme imports assessment-like elements by requiring explanation of sources and satisfaction of the Assessing Officer, thereby diluting its professed non-adjudicatory character.

4. Applicability to Residents, Non-Residents and RNORs

The definition of “assessee” extends the Scheme not only to residents but also to non-residents and not-ordinarily-resident individuals, provided they were residents either in the year of earning the income or in the year of acquisition of the foreign asset. This extension creates substantial confusion. Statutorily, disclosure of foreign assets in the return of income is required only for residents. Non-residents with no Indian income, or income below the basic exemption limit, are not otherwise required to file returns. Extending the Scheme to such persons indirectly imposes a disclosure obligation where none existed under the Income-tax Act.

Even among residents below the filing threshold, CBDT FAQs require filing of returns solely for foreign asset disclosure, failing which such persons are treated as defaulters. This position appears inconsistent with the Scheme’s stated objective of easing compliance for small taxpayers and warrants reconsideration.

5. Interaction with Return Filing and Remedial Provisions

Assessees who omitted disclosure may theoretically cure defects through belated returns under section 139(4), revised returns under section 139(5), or updated returns under section 139(8A). The FAQs are silent on whether an updated return cures the default of non-disclosure of foreign assets, particularly in light of the third proviso to section 139(8A), which bars updated returns where information under the Black Money Act has already been communicated. Section 116(b), however, appears to override this restriction by permitting declaration even where returns were furnished but assets were not disclosed. Clear guidance is therefore required on the preferred remedial route.