A foreign bank account closed years ago, shares received from an overseas employer, or property purchased while working abroad may still require disclosure in an Indian income tax return. Many taxpayers discover these omissions only after reviewing their past returns or receiving a compliance communication.
The Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 provides eligible taxpayers with a one-time, time-bound opportunity to disclose specified foreign assets or foreign income. However, the eligibility conditions, monetary limits and payment requirements differ depending on whether the income was untaxed or the asset was acquired from explained sources.
This guide explains who can use FADS 2026, the two disclosure categories, the amount payable, the Form 1 filing process and the deadlines taxpayers must follow.
FADS 2026 at a Glance
WHY CLIENTS CHOOSE KAR SATHI
✓ Tax Experts✓ Maximum Refund Assistance✓ Notice Support✓ Secure Documents✓ Transparent Pricing✓ Fast Turnaround
From April 2026, taxpayers handling certain property, rent, professional-payment or virtual-asset transactions no longer need to search for four different challan-cum-statements..
KAR SATHI
Need expert help with your Income Tax Return?
Get professional assistance with your ITR, income tax documents, refunds and notices.
Kar Sathi is an independent private platform and is not affiliated with, endorsed by, sponsored by, or authorized by any government entity. Government-related information provided by Kar Sathi is for informational purposes only. Users should verify information with the relevant official government source.
Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026
Legal basis
Chapter IV, Sections 130 to 144 of the Finance Act, 2026
Rules notified through
CBDT Notification No. 114/2026
Scheme commencement
16 August 2026
Last date for Form 1
31 December 2026
Valuation date
31 March 2026
Category 1 limit
Aggregate value/income up to ₹1 crore
Category 1 payment
30% tax plus an amount equal to that tax—effectively 60%
Category 2 limit
Aggregate foreign-asset value up to ₹5 crore
Category 2 payment
Flat fee of ₹1 lakh
Declaration form
Form 1
Payment challan
ITNS 289
What Is FADS 2026?
FADS 2026 is a voluntary disclosure scheme introduced through the Finance Act, 2026. It allows eligible taxpayers to regularise certain foreign assets or foreign income that were not properly reported earlier.
The scheme broadly covers two situations
A foreign asset or foreign income was chargeable to tax in India but was not offered to tax.
A foreign asset was acquired from an explained source, but the taxpayer failed to disclose it in the relevant foreign-asset schedule of the income tax return.
These situations are treated differently. The applicable limit and amount payable depend on the category under which the declaration is made.
A valid declaration, followed by payment and completion of the prescribed process, may provide protection from further tax, penalty and prosecution under the Black Money Act for the matters covered by the declaration, subject to the scheme’s conditions.
Who Can Use the Scheme?
The scheme can apply to a person who was resident in India under Section 6 of the Income-tax Act, 1961 during the relevant previous year.
It may also cover a person who is presently a non-resident or resident but not ordinarily resident—RNOR—if that person was resident in India:
During the year to which the undisclosed foreign income relates; or
During the year in which the undisclosed foreign asset was acquired.
Residence status must therefore be checked for the relevant year. Present residential status alone does not determine eligibility.
Owning a foreign asset does not automatically mean that FADS 2026 must be used. The source of funds, residential status, earlier tax treatment and disclosures made in previous returns should be reviewed first.
Two Disclosure Categories under FADS 2026
Category
What It Covers
Monetary Limit
Amount Payable
Category 1
Undisclosed foreign asset or foreign income that was chargeable to tax in India but was not offered to tax
Aggregate value/income up to ₹1 crore
30% tax plus an equal additional amount—effective payment of 60%
Category 2
Foreign asset acquired from income earned while non-resident, or from income already offered to tax in India, but omitted from the relevant return schedule
Aggregate asset value up to ₹5 crore
Flat fee of ₹1 lakh
Category 1: Untaxed Foreign Asset or Income
This category applies when
A taxpayer has an undisclosed asset located outside India;
Foreign income chargeable to tax in India was not offered to tax; or
The source of investment in the foreign asset cannot be satisfactorily explained.
The combined value of the undisclosed foreign assets as on 31 March 2026 and the undisclosed foreign income must not exceed ₹1 crore.
The amount payable is
Tax at 30% of the value of the asset or foreign income; plus
An additional amount equal to the tax.
The effective payment is therefore 60% of the amount covered by Category 1.
Category 2: Explained Asset but Reporting Omission
This category applies where the source of the foreign asset is explained, but the asset was not reported in the relevant schedule of the income tax return.
It may cover
An asset purchased from foreign income earned while the taxpayer was non-resident, but not disclosed after becoming resident; or
An asset purchased from income already offered to tax in India, but omitted from the foreign-asset schedule.
The aggregate value of such foreign assets must not exceed ₹5 crore. The prescribed payment is a flat fee of ₹1 lakh.
Category 2 should not be confused with untaxed foreign income. Supporting records must establish that the asset was acquired from an explained source.
What Assets or Income Can Be Declared?
Depending on the facts, a declaration may include
Foreign bank accounts;
Shares, securities or financial interests in foreign entities;
Shares received from an overseas employer;
Foreign immovable property;
Jewellery or artistic works located outside India;
Overseas investments;
Foreign income chargeable to tax in India but not reported; and
Other foreign assets covered by the scheme.
The taxpayer should determine the nature, ownership, acquisition date, source and fair market value of each item before filing Form 1.
When Is the Scheme Not Available?
FADS 2026 is not available in certain excluded cases, including
Income or assets representing proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money Laundering Act, 2002; and
Income or assets relating to an assessment year for which assessment proceedings have already been completed under the Black Money Act, 2015.
Where assessment proceedings are pending under the Income-tax Act or Black Money Act, the declaration may be considered by the Assessing Officer while completing the assessment, subject to the applicable provisions.
Taxpayers should obtain professional advice where any notice, investigation or assessment is already pending.
Documents Required
Keep the following information ready before filing
PAN registered on the e-Filing portal;
Passport and residential-status records;
Foreign bank account statements;
Share or investment statements;
Documents showing the date and cost of acquisition;
Evidence showing the source of investment;
Proof that the underlying income was already offered to tax, where applicable;
Valuation report for property, jewellery, artwork or other relevant assets;
Computation of undisclosed income or asset value;
Copies of relevant income tax returns; and
Supporting PDF or ZIP attachments, subject to portal limits.
Aadhaar OTP, DSC or an eligible EVC method should also be available for electronic verification.
How to File Form 1
Follow these steps on the Income Tax e-Filing portal
Log in using the taxpayer’s PAN credentials.
Go to e-File.
Select Income Tax Forms.
Choose File Income Tax Forms.
Open Forms as per Other Acts.
Select Foreign Assets of Small Taxpayers’ Disclosure Scheme, 2026—Form 1.
Complete the basic-information section.
Enter details of each foreign asset or foreign-income item.
Complete the applicable annexure.
Review the auto-calculated values in Parts C and D.
Upload the necessary supporting documents.
Preview the declaration carefully.
Complete e-Verification and submit the form.
Download and retain the acknowledgement.
If a fresh Form 1 is submitted after an earlier Form 1, the previous submission may become non-actionable and the latest submission date may determine the legal consequences. Refiling should therefore be done only after careful review.
Forms and Timelines
Form
Purpose
Timeline
Form 1
Declaration by taxpayer
16 August to 31 December 2026
Form 2
Order determining amount payable
Within one month from the end of the month in which Form 1 is submitted
Form 3
Intimation of payment with proof
Within four months from the end of the month in which Form 2 is issued
Form 4
Certificate confirming declaration and payment
Within one month from the end of the month in which Form 3 is submitted
Payment through ITNS 289
After receiving Form 2, the taxpayer must pay the determined amount through challan ITNS 289.
The normal payment period is two months from the end of the month in which Form 2 is received. A further delay of up to two months may be permitted with interest at 1% for every month or part of a month.
If payment is not completed within the permitted period, the declaration can become void and may be treated as if it was never made.
For ITNS 289
AY 2026-27 is pre-filled;
Corporate and non-corporate taxpayers must select the correct applicable minor head;
One challan can cover the tax and fee determined in Form 2; and
Payment made under an incorrect minor head cannot be corrected or refunded.
The challan details must be checked carefully before payment.
Practical Examples
Example 1: Overseas Shares Purchased from Untaxed Income
A resident taxpayer holds overseas shares worth ₹40 lakh purchased from foreign income that was taxable in India but was never reported.
The case may fall under Category 1. If eligible, the effective amount payable would generally be 60% of the declared value or income, subject to the scheme’s valuation and computation rules.
Example 2: Foreign Account Opened While Non-Resident
A taxpayer opened a foreign bank account while working abroad as a non-resident. After returning to India and becoming resident, the taxpayer continued to hold the account but omitted it from the foreign-asset schedule. The source of funds is fully documented.
If the conditions are satisfied and the aggregate value does not exceed ₹5 crore, the case may fall under Category 2, attracting a flat fee of ₹1 lakh.
Common Mistakes to Avoid
Treating every foreign-asset omission as Category 2;
Ignoring residential status for the relevant year;
Using the account balance instead of the prescribed valuation method;
Failing to document the source of investment;
Missing the Form 1 deadline of 31 December 2026;
Paying through an incorrect ITNS 289 minor head;
Missing Form 3 after making payment;
Assuming that filing Form 1 alone completes the scheme; and
Refilling Form 1 without understanding its effect on the earlier declaration.
Conclusion
FADS 2026 offers a limited opportunity to regularise eligible foreign-asset and foreign-income omissions. However, the correct category depends on the source of funds, taxability of income, residential status, earlier return disclosures and valuation of the asset.
Before filing Form 1, taxpayers should reconcile their past returns, foreign account statements, investment records and residential-status history. The declaration must be filed by 31 December 2026, followed by timely payment and completion of Forms 3 and 4.
Kar Sathi can assist with eligibility review, document preparation, valuation coordination and Form 1 filing. As every foreign-asset case has different facts, professional review should be completed before making a declaration or payment.
Official Sources
[Income Tax Department—FADS 2026 and ITNS 289 FAQs](https://www.incometax.gov.in/iec/foportal/newdownloads/foreign%20assets%20of%20small%20taxpayers)
[Income Tax Department—Form 1 User Manual](https://www.incometax.gov.in/iec/foportal/newdownloads/form%201%20of%20fads-um)
CBDT Notification No. 114/2026
COMMON QUESTIONS
Answers before you file.
A foreign bank account closed years ago, shares received from an overseas employer, or property purchased while working abroad may still require disclosure in an Indian income tax return. Many taxpayers discover these omissions only after.
Receiving an income-tax assessment order can be stressful, especially when it is followed by possible penalty or prosecution proceedings. In eligible cases, however, a taxpayer may
The Income-tax Act, 2025 came into effect on 1 April 2026, replacing the Income-tax Act, 1961. However, this does not mean that every return, notice, correction or tax proceeding.
