Budget 2026 Foreign Asset Scheme: How to Declare and Avoid Prosecution

A Second Chance for Compliance

Finance Minister Nirmala Sitharaman's Union Budget 2026 has introduced a significant compliance relief measure: a one-time, six-month window for small taxpayers to declare previously undisclosed foreign income and assets. This scheme is specifically designed to help individuals like students, young professionals, tech employees, and relocated NRIs who may have inadvertently failed to meet complex overseas reporting requirements. It offers a structured path to regularise past omissions without the threat of prosecution.

Why This Scheme is Necessary

Under existing laws, particularly the Black Money Act of 2015, failure to disclose foreign assets can lead to severe penalties and criminal prosecution, even if the omission was unintentional. The new scheme acknowledges that many such lapses arise from a lack of awareness or the complexities of global mobility, rather than a deliberate attempt to evade tax. For individuals who have studied or worked abroad, managing foreign bank accounts, stipends, or stock options can create compliance challenges upon returning to India. This initiative provides a crucial, low-stress opportunity to correct past filings.

Who Can Benefit from the Scheme?

The initiative targets a specific group of taxpayers who have financial footprints abroad, often without realising the full compliance implications. This includes:

• Students who returned to India after studying abroad and held foreign bank accounts.
• Young professionals and tech employees who had short-term overseas assignments or received stock-linked compensation from global firms.
• Relocated NRIs who are navigating the transition of their tax residency status.
• Any small taxpayer who made a genuine mistake in reporting foreign income or assets.

A Two-Tiered Approach to Disclosure

The scheme is divided into two distinct categories to address different types of non-compliance. Taxpayers must identify which category applies to their situation to avail the benefits.

Category A: For Undisclosed Foreign Income or Assets

This category is for taxpayers who have not disclosed their overseas income or assets at all. To be eligible, the total value of the undisclosed income or asset must be up to ₹1 crore.

To comply, the individual must pay:

1. 30% tax on the fair market value of the asset or the amount of undisclosed income.
2. An additional 30% tax in lieu of a penalty.

Upon making this total payment of 60%, the taxpayer will be granted immunity from prosecution under the Black Money Act.

Category B: For Mismatched Asset Declaration

This applies to individuals who have paid the due tax on their foreign income but failed to declare the asset that was acquired from that income in their tax filings. This category is applicable for assets valued up to ₹5 crore.

To regularise this, the taxpayer needs to pay a flat fee of ₹1 lakh. In return, they will receive immunity from both penalty and prosecution.

Key Provisions at a Glance

Feature	Category A	Category B
Eligibility	Completely undisclosed foreign income/asset	Income disclosed, but asset not declared
Value Limit	Up to ₹1 Crore	Up to ₹5 Crore
Payment Due	30% Tax + 30% Additional Tax	Flat Fee of ₹1 Lakh
Immunity Granted	From Prosecution	From both Penalty & Prosecution

Retrospective Relief for Small Asset Holders

In a related move, the Budget also provides immunity from prosecution for the non-disclosure of non-immovable foreign assets where the aggregate value is less than ₹20 lakh. This important measure is applied retrospectively from October 1, 2024, offering relief for minor, inadvertent omissions that may have occurred in the past.

A Broader Shift Towards Decriminalisation

This disclosure scheme is part of a larger government strategy to rationalize the tax prosecution framework and improve the ease of doing business. The Finance Minister also announced plans to decriminalise minor offences, such as the non-production of books of account, and replace them with monetary fines. This signals a clear policy shift towards treating minor compliance lapses as civil matters rather than criminal ones, reducing litigation and taxpayer anxiety.

The Path Forward for Taxpayers

The announced six-month window is a critical, one-time opportunity. Eligible individuals should use this period to carefully review their financial history, especially any period spent studying or working abroad. Given the specifics of the scheme, consulting with a tax professional is advisable to ensure correct disclosure under the appropriate category and to complete the process within the stipulated timeline. Ignoring this chance could lead to facing the full force of existing penalty and prosecution provisions in the future.

Conclusion

The Union Budget 2026's foreign asset disclosure scheme offers a practical and fair solution for small taxpayers caught in complex international compliance webs. By providing a clear path to declare assets and regularise filings, the government aims to encourage voluntary compliance, reduce litigation, and foster a more trusting tax environment.