Foreign Assets of Small Taxpayers - Disclosure Scheme Rules, 2026: An Analysis

Introduction

The Central Board of Direct Taxes (CBDT), in exercise of powers conferred by Section 143 of the Finance Act, 2026 (4 of 2026), has notified the Foreign Assets of Small Taxpayers - Disclosure Scheme Rules, 2026 vide Notification No. 114/2026, dated 14th August 2026 (G.S.R. 732(E)). The Rules operationalise the disclosure scheme set out in Chapter IV of the Finance Act, 2026, and shall come into force on 16th August 2026.

The scheme provides a limited window for small taxpayers holding undisclosed foreign assets or foreign income to make a voluntary declaration, pay the prescribed amount, and obtain immunity from further tax, penalty, and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Key Definitions and Dates

Under Rule 2, "valuation date" is fixed as 31st March 2026, and "last date" for filing a declaration is 31st December 2026. The "income-tax authority" for purposes of the scheme is the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems).

Particulars	Date
Notification date	14th August 2026
Rules come into force	16th August 2026
Valuation date	31st March 2026
Last date for declaration	31st December 2026

Rule 3: Fair Market Value Determination

Rule 3 prescribes a detailed, asset-class-specific methodology for computing fair market value (FMV), generally adopting a "higher of cost or market price" approach:

• Bullion, jewellery, precious stones, and artistic work: Higher of cost of acquisition or open-market sale price, supported by a valuer's report; where valuation is not obtained, indexed cost of acquisition is deemed to be the FMV.
• Quoted shares and securities: Higher of cost or the average of the lowest and highest price quoted on an established securities market on the valuation date.
• Unquoted equity shares: Higher of cost or a formula-based net asset value — FMV = [(A + B − L) × PV] / PE, where A is book value of specified assets, B is FMV of bullion/securities/immovable property, L is book value of liabilities (excluding specified items), PE is paid-up equity capital, and PV is paid-up value of the shares.
• Unquoted shares/securities other than equity: Higher of cost or open-market price per valuer's report.
• Immovable property: Higher of cost or open-market price per valuer's report.
• Bank accounts: Sum of all deposits made since account opening; where a declaration under Chapter VI of the Black Money Act, 2015 has already been made and taxed, only deposits made since that declaration date are aggregated. Withdrawals subsequently re-deposited are excluded from computation.
• Interest in a partnership firm, AOP, or LLP: Net asset value allocated per capital contribution and profit-sharing ratio.
• Any other asset: Higher of cost/amount invested or arm's-length open-market price.

Sub-rule (2) addresses assets transferred prior to the valuation date, valuing them at the higher of cost or sale price (or FMV on date of transfer, where transferred without or for inadequate consideration). Sub-rule (3) provides for a reduction mechanism where sale proceeds of an old asset are reinvested in a new asset, to avoid double counting.

Currency conversion is governed by sub-rules (4) and (5): amounts in RBI-permitted currencies are converted at the RBI reference rate on the valuation date; other currencies are first converted to US Dollars per the relevant central bank rate, then to Indian Rupees per the RBI reference rate.

Rule 4: Amount Payable and Eligibility Thresholds

Eligibility and the amount payable are determined with reference to the Table under Section 133 of the Act:

Category	Threshold	Tax/Fee Structure
Sl. No. 1 (Undisclosed asset + undisclosed foreign income)	Aggregate value not exceeding ₹1 crore	30% tax + 100% penalty on tax (effectively 60% of aggregate value)
Sl. No. 2 (Foreign asset not disclosed in return, acquired from non-resident/already-taxed income)	Aggregate value not exceeding ₹5 crore	Fee of ₹1 lakh

Where the aggregate value under either category exceeds the respective threshold, the assessee is rendered ineligible to declare under the scheme in respect of that category.

Rule 5: Declaration Process (Form 1)

Declarations are to be filed electronically in Form 1. Rule 5(2) provides a materiality safeguard: where the FMV declared varies from the value subsequently determined by the Assessing Officer, the declaration shall not be treated as invalid solely on account of misrepresentation or suppression, provided the variance does not exceed 20% of the declared FMV.

Rules 6-8: Order, Payment, and Certification (Forms 2-4)

The procedural sequence following declaration is as follows:

1. Form 2 — Order passed by the income-tax authority under Section 135(1), determining the amount payable along with penalty or fee, to be paid within two months from the end of the month of receipt of the order.
2. Form 3 — Intimation of payment, to be furnished electronically along with proof of payment. Payments may be made in parts.
3. Form 4 — Final order under Section 135(5) certifying the validity of the declaration and payment, granting immunity from further tax, penalty, and prosecution under Sections 130 to 144 of the Act and under the Black Money Act, 2015. Forms 1, 2, and 3 are to be annexed to Form 4 when issued as a single document.

Interest on Delayed Payment

Where payment is not made within the initial two-month period, an additional period not exceeding two further months is permitted, subject to interest at 1% per month or part thereof on the outstanding amount under Section 135(3). Payment beyond the maximum permissible period (four months from the end of the month of the order) results in forfeiture of scheme benefits, and the declaration is treated as void.

Conclusion

The Rules provide a reasonably structured and time-bound compliance pathway for small taxpayers to regularise undisclosed foreign assets and income, with defined valuation norms, threshold-based eligibility, and a clear four-form procedural trail. Taxpayers considering declaration under this scheme should undertake careful year-wise and category-wise computation of aggregate values against the prescribed thresholds before filing, given that exceeding the threshold renders the declaration ineligible in its entirety for that category.