Foreign Assets Disclosure Scheme. The Complete Guide with Relief Comparison.
Union Budget 2026 has introduced a game-changing opportunity for individuals holding undisclosed or unreported foreign assets. Along with this, the Budget has also softened the extremely harsh consequences of the Black Money Act for genuine taxpayers.
This article explains:
The Foreign Assets Disclosure Scheme, 2026.
The ₹2 crore & ₹5 crore limits.
The ₹20 lakh prosecution relaxation.
And most importantly, how severe the penalty was earlier vs the relief now.
What is the Foreign Assets Disclosure Scheme, 2026?
The Government has introduced a one-time, time-bound compliance window allowing individuals to voluntarily declare:
Undisclosed foreign income, or
Undisclosed / unreported foreign assets
On valid declaration and payment, the taxpayer gets:
- Immunity from penalty and prosecution under the Black Money Act
- However, one thing to note is the amount paid is non-refundable
This scheme is aimed at resolving legacy and inadvertent non-compliance, especially by NRIs, returning residents, employees with RSUs/ESOPs, and students.
Two Categories Under the Scheme
The scheme works under two clearly defined categories, each with its own cap and cost.
- Category 1: Undisclosed Foreign Income / Asset
- Category 2: Income Disclosed, Asset NOT Reported
Category 1: Undisclosed foreign income or asset (Cap: ₹2 crore)
This category applies where foreign income was never offered to tax in India, or a foreign asset was not disclosed at all in earlier returns. The aggregate value of such undisclosed foreign income and assets must not exceed ₹2 crore.
Under this category, the taxpayer is required to pay:
Tax at 30% of the fair market value, and
An additional 30% amount in lieu of penalty
The effective outflow therefore works out to 60% of the asset value. In return, the declarant receives complete immunity from penalty and prosecution under the Black Money Act.
For example, if an individual held an undisclosed foreign bank balance of ₹40 lakh, the total amount payable under the scheme would be ₹24 lakh (Tax at 30% plus an additional 30% amount in lieu of penalty), and the asset would become fully compliant with no criminal exposure.
Category 2: Income disclosed earlier, asset not reported (Cap: ₹5 crore)
This category is the most beneficial and practically relevant for genuine taxpayers. It applies where foreign income was already disclosed and taxed, but the foreign asset held was not reported in Schedule FA of the income-tax return.
In such cases, where the aggregate value of the foreign assets does not exceed ₹5 crore, the declarant is required to pay only a flat fee of ₹1,00,000, with no additional tax or penalty. Full immunity from prosecution is granted, and the asset becomes compliant for future years.
For instance, if a taxpayer had already paid tax on foreign income but failed to report foreign mutual funds worth ₹2.5 crore, the entire non-compliance can be regularized by paying just ₹1 lakh.
What happens if the asset value exceeds the prescribed limits?
If undisclosed foreign income or assets exceed ₹2 crore, Category 1 is not available. Similarly, if unreported foreign assets exceed ₹5 crore, Category 2 is not available. In such cases, the taxpayer continues to be governed by the normal provisions of the Black Money Act, with severe financial and criminal consequences.
What was the position earlier under the Black Money Act?
To appreciate the relief provided in Budget 2026, it is essential to understand how harsh the law was earlier. Prior to this Budget, discovery of an undisclosed foreign asset attracted:
Tax at 30% of the asset value,
Penalty equal to three times the tax (effectively 90% of the asset value), and
Mandatory prosecution, with rigorous imprisonment ranging from three to ten years, along with fine.
This meant that the total financial outflow could reach 120% of the asset value, apart from the risk of imprisonment, even in cases of genuine or technical non-disclosure.
For example, an undisclosed foreign asset worth ₹50 lakh would have resulted in a tax and penalty outflow of ₹60 lakh, along with criminal prosecution. Under the new disclosure scheme, the same asset can be regularised by paying ₹30 lakh, with complete immunity from prosecution.
Additional relief for small foreign assets up to ₹20 lakh
Apart from the disclosure scheme, Budget 2026 also introduces a significant relaxation for small foreign assets. Where the aggregate value of foreign assets does not exceed ₹20 lakh, and the non-disclosure is not wilful, prosecution under the Black Money Act will not be initiated.
This relief is independent of the disclosure scheme and is particularly relevant for students and young professionals who maintained small foreign bank accounts or minor overseas investments. It is important to note that foreign immovable property is excluded from this relaxation.
For example, a foreign savings account with a balance of ₹12 lakh that was not reported earlier would no longer attract criminal prosecution, and can be corrected through revised or prescribed compliance mechanisms.
Choosing the correct route
In simple terms:
Small foreign assets up to ₹20 lakh benefit from prosecution relaxation.
Undisclosed income or assets up to ₹2 crore can be regularised under Category 1 of the disclosure scheme.
Assets up to ₹5 crore, where income was already taxed but reporting was missed, fall under Category 2, offering the most relief.
Final takeaway
Union Budget 2026 marks a clear shift from a purely punitive approach to a compliance-driven framework. What earlier attracted penalties exceeding the asset value and potential imprisonment can now be resolved at a capped cost with certainty and immunity, provided action is taken within the prescribed window.
Given the high stakes and the importance of correct classification, professional evaluation is strongly recommended before opting for the scheme.
Infinitax can assist in assessing eligibility, classification, valuation, and execution of disclosures in a compliant and risk-optimised manner.
Disclaimer
This article is intended solely for general informational and educational purposes and does not constitute legal, tax, or professional advice. The provisions discussed are based on the proposals introduced in the Union Budget 2026 and the Finance Bill, 2026, which are subject to enactment, amendments, notifications, rules, and clarifications issued by the Government and tax authorities. Readers are advised to seek professional advice before taking any action. Infinitax shall not be responsible for decisions taken based on this information.