The Central Board of Direct Taxes (CBDT) has notified the Foreign Assets of Small Taxpayers-Disclosure Scheme Rules, 2026, providing the procedural framework for taxpayers seeking to declare specified undisclosed foreign assets and income under the Finance Act, 2026.
The notification was issued by the Ministry of Finance, Department of Revenue, on August 14, 2026 and the Rules will come into force from August 16, 2026.
The new Rules lay down the manner of determining the fair market value of foreign assets, eligibility thresholds, declaration requirements, payment procedure and the prescribed forms to be used by eligible taxpayers.
For taxpayers and tax professionals, the notification is important because it converts the statutory disclosure framework into a defined compliance process.
What Is the Foreign Assets of Small Taxpayers Disclosure Scheme?
The Rules provide a mechanism for eligible taxpayers to make an electronic declaration in respect of specified undisclosed foreign assets and income covered by Section 133 of the Finance Act, 2026.
The scheme is structured around two broad categories.
The first category covers undisclosed foreign assets and undisclosed foreign income where the aggregate value does not exceed ₹1 crore .
The second category covers specified undisclosed foreign assets where the aggregate value does not exceed ₹5 crore . The Rules specifically require the declaration to be made electronically in Form 1 .
This means that the threshold is not simply tested asset-by-asset in every situation. Taxpayers need to examine the aggregate value of the assets or income falling within the relevant category.
Who Can Use the Scheme?
The notification contains illustrations that make the eligibility thresholds easier to understand.
For example, where an undisclosed foreign bank account has a value of ₹55 lakh and undisclosed foreign income amounts to ₹25 lakh, the combined value is ₹80 lakh. Since this is within the ₹1 crore threshold, the taxpayer is eligible to make a declaration.
On the other hand, if foreign property valued at ₹90 lakh is combined with undisclosed foreign income of ₹30 lakh, the aggregate value becomes ₹1.20 crore. Since this exceeds the ₹1 crore threshold, the taxpayer would not be eligible under that category.
Similarly, the Rules provide a separate ₹5 crore threshold for specified undisclosed foreign assets. Foreign mutual funds valued at ₹2 crore and foreign shares valued at ₹2.5 crore, for example, have an aggregate value of ₹4.5 crore and fall within the threshold.
However, foreign immovable property worth ₹3 crore combined with foreign securities worth ₹3.5 crore results in an aggregate value of ₹6.5 crore, which exceeds the ₹5 crore limit.
What Types of Foreign Assets Can Be Declared?
The prescribed Form 1 captures different categories of foreign assets and income.
These include:
- Foreign bank accounts
- Immovable property
- Jewellery
- Artistic work
- Quoted shares and securities
- Unquoted equity shares
- Other unquoted shares and securities
- Any other asset
- Foreign income
The form also requires details such as the country of location, date of acquisition, acquisition cost, indexed cost where applicable, valuation details and fair market value.
This detailed reporting requirement means that taxpayers should keep supporting documentation relating to the acquisition and valuation of foreign assets ready before filing the declaration.
Fair Market Value to Be Determined as on March 31, 2026
One of the most important aspects of the Rules is the methodology prescribed for determining the fair market value (FMV) of foreign assets.
The valuation date specified in the Rules is March 31, 2026.
Different valuation mechanisms have been prescribed depending upon the nature of the asset.
Foreign Bank Accounts
For a foreign bank account, the value is generally linked to the aggregate deposits made into the account from the date the account was opened up to the valuation date, subject to the specific rules regarding withdrawals and redeposits.
Where an account had previously been declared under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, a separate computation applies from the date of such declaration.
Shares and Securities
The Rules prescribe separate methods for quoted and unquoted shares and securities.
For quoted securities, the valuation can be based on the prescribed market-price methodology on the valuation date. For unquoted equity shares, the Rules provide a formula-based valuation mechanism involving the value of assets, liabilities, paid-up equity capital and paid-up value of shares.
Immovable Property
For foreign immovable property, the FMV is based on the higher of the acquisition cost and the price that the property could ordinarily fetch in an open-market transaction on the valuation date, subject to the valuation provisions prescribed under the Rules.
Where applicable, taxpayers can obtain valuation reports from recognised valuers in the relevant jurisdiction.
What Is the Tax and Penalty Under the Scheme?
For the first category covered by Section 133, the Rules illustrate a tax burden of 30% of the relevant undisclosed asset or foreign income , along with a penalty equivalent to 100% of the aggregate tax .
For instance, where an undisclosed foreign bank account is valued at ₹60 lakh and undisclosed foreign income is ₹20 lakh, the aggregate value is ₹80 lakh and falls within the ₹1 crore threshold.
The illustration calculates:
- Tax on undisclosed asset: ₹18 lakh
- Tax on undisclosed foreign income: ₹6 lakh
- Aggregate tax: ₹24 lakh
- Penalty: ₹24 lakh
- Total amount payable: ₹48 lakh
The financial impact therefore needs to be carefully evaluated before a taxpayer proceeds with a declaration.
Separate ₹1 Lakh Fee for Certain Foreign Assets
The Rules also contain a separate treatment for specified foreign assets falling within the ₹5 crore threshold.
For example, the notification gives the illustration of foreign land worth ₹3 crore that was acquired when the taxpayer was a non-resident and subsequently not disclosed after the taxpayer became resident in India. The amount payable in that case is shown as a ₹1 lakh fee .
However, taxpayers should carefully identify the category into which their foreign asset or income falls before determining the applicable amount.
20% Variation in Fair Market Value
The Rules provide an important safeguard concerning differences in valuation.
Where the FMV of an asset other than a bank account declared in Form 1 differs from the value subsequently determined by the Assessing Officer or another income-tax authority, the declaration will not be treated as invalid merely because of that difference if the variation does not exceed 20% of the fair market value declared .
This provision could be particularly relevant for assets such as foreign immovable property, jewellery, artwork and unquoted securities, where valuation may involve greater subjectivity.
How to Make the Declaration?
The declaration is required to be made electronically in Form 1 .
The form requires basic taxpayer information such as:
- Name
- Address
- PAN
- Passport details, where relevant
- Details of the foreign asset or income
- Relevant previous year
- Residential status during the relevant year
- Supporting documents
- Nature and details of the asset or income
- Fair market value
The prescribed form specifically provides for supporting documents evidencing the acquisition of the asset or receipt of income.
What Happens After Form 1 Is Filed?
After the declaration is submitted, the income-tax authority will issue an order electronically in Form 2 determining the amount payable, including the applicable tax, penalty or fee.
The taxpayer is then required to make the payment electronically and furnish the payment intimation, along with proof of payment, through Form 3 .
Form 3 records the amount determined, the initial due date, payments already made and any outstanding amount on which additional interest may become payable.
Payment Timeline Under the Scheme
The Rules provide an initial payment window of two months from the end of the month in which the order is received .
If payment is made after this initial period, additional interest is payable at 1% per month or part thereof , subject to the additional period prescribed under the Rules.
The notification also clarifies that payments under the scheme can be made in parts. Additional interest applies for the period exceeding the initial two months, subject to a maximum of two additional months.
Importantly, failure to pay the amount within the permitted period can result in the Form 1 declaration being treated as void and deemed never to have been made.
Form 4 Provides Final Validation and Immunity
Once the required payment has been made, the prescribed income-tax authority will issue Form 4 .
The form certifies the validity of the declaration and payment. It also provides for immunity, subject to the applicable statutory provisions, from further tax or penalty and prosecution for offences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 .
Thus, Form 4 is an important final document in the compliance chain and should be retained carefully along with Forms 1, 2 and 3 and the supporting records.
Key Forms Under Foreign Assets Disclosure Scheme 2026
| Form | Purpose |
|---|---|
| Form 1 | Declaration of eligible undisclosed foreign assets/income |
| Form 2 | Order determining the amount payable |
| Form 3 | Intimation of payment, including interest where applicable |
| Form 4 | Order certifying validity of declaration and payment |
The Rules specifically provide that Forms 1, 2 and 3 are to be annexed while issuing Form 4 as a single document.
Practical Takeaways for Taxpayers and Professionals
The notification is particularly relevant for taxpayers who have foreign assets or income that were not appropriately disclosed in their tax filings.
Before considering a declaration, taxpayers should undertake a proper review of:
- The nature and ownership of the foreign asset.
- The year in which the asset was acquired or income was earned.
- Residential status during the relevant period.
- Whether the asset or income was required to be disclosed in the return.
- The applicable ₹1 crore or ₹5 crore threshold.
- The FMV as on March 31, 2026.
- Supporting acquisition and valuation documents.
- The applicable tax, penalty or fee.
- The payment timeline after receipt of the Form 2 order.
- The documentation required for obtaining final validation in Form 4.
The distinction between foreign income and foreign assets is particularly important because the scheme applies different thresholds and payment consequences depending on the category.
Scheme Comes Into Force From August 16, 2026
The Foreign Assets of Small Taxpayers–Disclosure Scheme Rules, 2026 have been notified through CBDT Notification No. 114/2026 dated August 14, 2026, and come into force from August 16, 2026 .
The Rules provide the procedural foundation for the disclosure mechanism introduced under the Finance Act, 2026. For eligible taxpayers, the scheme may provide a structured route to regularise specified undisclosed foreign assets or income, subject to the conditions, thresholds and payment requirements prescribed by law.
For tax professionals, the immediate priority should be to examine the eligibility criteria, valuation methodology and documentation requirements carefully before advising clients to proceed with a declaration.
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