By CA Surekha S Ahuja
Part 2 of our FAST-DS 2026 series
Read Part 1: FAST-DS 2026: ₹1 Lakh or 60%? The Foreign Asset Decision Every NRI, Student & Overseas Investor Must Get Right
A foreign bank account, overseas shares, ESOPs, RSUs or inherited property does not automatically mean that the entire asset represents undisclosed income. The decisive questions are: how was it acquired, when did the income arise, what was the taxpayer's residential status, was the source already taxed in India, and what exactly was omitted from the return?
An asset-reporting lapse is not necessarily an income-tax default. An explained investment does not automatically explain untaxed dividends or interest. And the ₹20 lakh relief under the Black Money Act is not a general exemption.
The Foreign Assets of Small Taxpayers–Disclosure Scheme, 2026 (FAST-DS) offers a time-bound opportunity to resolve specified legacy defaults. But the benefit depends on correct classification, eligibility, valuation, payment and completion of the prescribed forms.
The correct sequence is:
Identify the default → Test legal relief → Establish eligibility → Value and substantiate → Declare in Form 1 → Pay → File Form 3 → Obtain Form 4.
1. Identify the default before valuing the asset
Prepare a year-wise record for each foreign asset and income source.
| Test | What must be established |
|---|---|
| Residential status | Status in the year of acquisition and the year income arose |
| Ownership | Legal and beneficial ownership |
| Source | Salary, savings, investment, inheritance, gift or other source |
| Tax treatment | Whether the underlying income was taxable and offered to tax in India |
| Reporting | Whether the asset or income was correctly disclosed in the return and Schedule FA |
| Subsequent income | Dividends, interest, rent, capital gains or other income generated |
Residential status and Schedule FA
Section 131 of Chapter IV of the Finance Act, 2026 provides the residential-status framework for FAST-DS. It covers specified persons who were resident in the relevant previous year and certain persons who are non-resident or RNOR in that year but were resident in the year to which the undisclosed income relates or in which the asset was acquired.
Current residential status or passport status alone does not decide eligibility. Examine the relevant year of acquisition or income.
Schedule FA reporting is based on the relevant calendar-year period ending 31 December, not the financial year. Under the applicable return instructions, non-residents and RNORs are not required to fill Schedule FA; ROR taxpayers are generally required to report relevant foreign assets and interests. This reporting rule does not, by itself, determine whether foreign income is taxable in India.
Practical control: Reconcile residential status, asset acquisition, source, tax treatment and Schedule FA reporting year by year. A current bank balance cannot establish the historical default.
2. Test the ₹20 lakh relief and BMA exposure
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) separately addresses tax, penalties and prosecution.
The ₹20 lakh relief is limited to specified asset-related defaults
The Finance (No. 2) Act, 2024 amended sections 42 and 43 of the BMA with effect from 1 October 2024. Section 160 of the Finance Act, 2026 extended corresponding relief to prosecution under sections 49 and 50, retrospectively from 1 October 2024.
The provisos cover foreign assets, other than immovable property, where their aggregate value does not exceed ₹20 lakh.
| Issue | Legal position |
|---|---|
| Threshold | Aggregate ₹20 lakh, not per asset or account |
| Covered assets | Foreign assets other than immovable property |
| Immovable property | Excluded, irrespective of value |
| Penalty | Relevant relief under sections 42 and 43 |
| Prosecution | Corresponding relief under sections 49 and 50 |
| Foreign income | No automatic relief for a separate income-disclosure default |
| BMA tax | No general exemption from tax under section 3 |
| FAST-DS | Separate limits of ₹1 crore and ₹5 crore apply |
The threshold cannot be extended to foreign immovable property or treated as a blanket exemption for taxable foreign income omitted from the return.
Penalty and prosecution must be distinguished
| Provision | Default | Consequence |
|---|---|---|
| Section 41 | Undisclosed foreign income or asset | Penalty equal to three times tax computed under section 10 |
| Section 42 | Specified failure to furnish return involving foreign assets or income | Penalty of ₹10 lakh, subject to statutory conditions and relief |
| Section 43 | Failure to furnish or inaccurate particulars concerning foreign assets or income | Penalty of ₹10 lakh, subject to statutory conditions and relief |
| Section 49 | Wilful failure to furnish return relating to foreign income or assets | Prosecution, subject to statutory safeguards |
| Section 50 | Wilful failure to disclose foreign assets or foreign-source income in the return | Prosecution, subject to statutory safeguards |
Two points are critical:
Sections 42 and 43 do not expressly require wilfulness for the penalty provisions. Their individual statutory conditions must be tested.
Sections 49 and 50 expressly require wilfulness for prosecution.
Section 49 also provides a specific safeguard where the return under section 139(1) is furnished before expiry of the relevant assessment year. It is not a general immunity for every reporting omission.
Section 41 penalty is not automatic. The procedure under section 46, including show-cause notice, opportunity of hearing and applicable approval requirements, must be considered.
Professional test: Identify the exact default, the applicable provision, available relief and procedural stage. Neither an automatic three-times-tax penalty nor a blanket penalty-free conclusion is legally sound.
3. Establish FAST-DS eligibility
FAST-DS is contained in Chapter IV, sections 130–144, of the Finance Act, 2026. The Rules were notified through CBDT Notification No. 114/2026, G.S.R. 732(E), dated 14 August 2026. The Scheme commenced on 16 August 2026.
Form 1 deadline: 31 December 2026. Valuation date: 31 March 2026.
Section 132 covers specified cases involving failure to furnish a return, omission of foreign assets or income in a return filed before commencement of the Scheme, or income or assets escaping assessment under section 147.
The two categories
| Particulars | Category 1 | Category 2 |
|---|---|---|
| Nature | Undisclosed foreign asset or untaxed foreign income | Explained-source asset omitted from the relevant Schedule |
| Qualifying circumstances | Unexplained asset source or foreign income taxable in India but not offered to tax | Asset acquired from qualifying non-resident-period foreign income or income already offered to tax in India |
| Aggregate limit | ₹1 crore | ₹5 crore |
| Amount payable | 30% plus an equal amount | Fixed fee of ₹1 lakh |
Category 1: The aggregate value of undisclosed foreign assets as at 31 March 2026 and undisclosed foreign income must not exceed ₹1 crore. The amount payable is 30% plus an equal amount—effectively 60%.
Category 2: The aggregate value of qualifying assets must not exceed ₹5 crore. The prescribed fee is ₹1 lakh.
A gift, inheritance, loan or family transfer does not automatically qualify for Category 2. The asset must satisfy the specific statutory conditions.
Separate the asset from the income it generates. Shares acquired from salary already taxed in India may qualify under Category 2 if omitted from Schedule FA and all conditions are met. Dividends from those shares, if taxable in India but not offered to tax, require separate examination under Category 1.
Exclusions and pending proceedings
Section 140 excludes specified cases, including proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002, and assets or income relating to an assessment year for which assessment has been completed under the BMA.
Under section 141, pending assessment proceedings under the Income-tax Act or BMA must take the declaration into account while being completed. This does not automatically stay or close the proceedings.
4. Value and substantiate the declaration
Rule 3 prescribes asset-specific valuation as at 31 March 2026. The method must be selected asset by asset.
| Asset | Valuation focus |
|---|---|
| Bank account | Generally, aggregate deposits from opening up to valuation date, subject to prescribed adjustments |
| Immovable property | Prescribed fair-market-value and cost comparison |
| Quoted shares/securities | Prescribed market-value and acquisition-cost comparison |
| Unquoted shares | Prescribed net-asset method and cost comparison |
| Jewellery/artistic work | Prescribed valuation and cost comparison |
| Other assets | Applicable prescribed method |
Bank accounts and reinvestments
For a foreign bank account, Rule 3 generally requires aggregation of deposits from the date of opening up to 31 March 2026—not merely the closing balance. Prescribed adjustments apply to qualifying redeposits of withdrawals from the same account and specified amounts previously declared under the BMA.
Where funds move through sale, withdrawal and reinvestment, trace the transaction chain and apply the prescribed adjustments to avoid double counting.
Foreign-currency conversion must follow the mechanism in Rule 3, including the RBI reference rate where applicable. Retain the exchange-rate source and calculation.
Limited 20% valuation protection
Rule 5(2) provides a limited protection where the difference between declared and authority-determined fair market value does not exceed 20%, for assets other than bank accounts.
It does not apply to bank accounts and does not protect incorrect ownership, source, category or other material misstatements.
Essential evidence
| Matter | Records to retain |
|---|---|
| Residential status | Passport, travel history, visa, employment records and day-count computation |
| Bank account | Account-opening details and complete statements |
| Shares/ESOPs/RSUs | Grant, vesting, broker, payroll and sale records |
| Foreign income | Employment records, foreign returns and tax-payment evidence |
| Property | Purchase documents, payment trail and valuation report |
| Inheritance/gift | Succession or gift documents and source evidence |
| Indian tax payment | Returns, computations and tax-payment records |
| Currency conversion | Applicable exchange-rate source and working |
Ownership and source are separate questions. Establish both.
5. Form 1: declaration workflow
The Income Tax Department's Form 1 User Manual sets out the following portal process.
Step 1: Prepare the information
Keep ready:
PAN registered on the e-filing portal;
Year-wise residential-status computation;
Asset and income particulars;
Rule 3 valuation workings;
Source and tax-payment evidence;
Passport details, where relevant; and
Supporting documents and e-verification facility.
The portal manual permits PDF or ZIP attachments up to 5 MB each.
Step 2: Open Form 1
Log in and follow:
e-File → Income Tax Forms → File Income Tax Forms → Forms as per other Acts
Select FOREIGN ASSETS OF SMALL TAXPAYERS' DISCLOSURE SCHEME 2026 (Form 1 of FADS 2026) and click File Now.
Confirm the PAN, Online submission mode and Original filing type. Click Continue, then Let's Get Started.
Step 3: Complete the eight tabs
| Section | Particulars |
|---|---|
| Part A | Declarant's name, address and PAN |
| Part B | Applicable declaration category |
| Annexure 1 | Undisclosed foreign assets |
| Annexure 2 | Undisclosed foreign income |
| Annexure 3 | Qualifying assets acquired from foreign income during non-resident period |
| Annexure 4 | Qualifying assets acquired from income already offered to tax in India |
| Parts C and D | Value summary and amount payable |
| Verification | Confirmation and electronic verification |
Step 4: Select the applicable category in Part B
The four choices are:
Undisclosed asset located outside India.
Undisclosed foreign income.
Asset acquired from foreign income while non-resident but omitted from the relevant Schedule after becoming resident.
Asset acquired from income already offered to tax in India but omitted from the relevant Schedule.
Select only categories supported by the facts and statutory conditions. Save Part B to enable the relevant annexures.
Step 5: Complete the annexures
The portal uses these codes:
| Code | Category |
|---|---|
| A1 | Bank account |
| A2 | Immovable property |
| A3 | Jewellery |
| A4 | Artistic work |
| A5 | Shares and securities |
| A6 | Any other asset |
| I1 | Any income |
All four annexures contain asset categories A1–A6. Annexures 1 and 2 also contain I1; Annexures 3 and 4 do not.
Use + Add Details to enter individual asset or income records. The portal allows entries to be edited or deleted before submission. Attach a separate computation where the detailed valuation differs from the aggregate displayed.
Step 6: Reconcile Parts C and D
The portal generates a summary from the annexures.
Part C displays the category-wise asset and income values and the aggregate limits.
Part D displays the Category 1 amount at 60%, the Category 2 fee, where applicable, and the total amount payable.
Independently reconcile these figures with the eligibility and valuation workings. A system-generated computation does not validate the legal classification or source of funds.
Step 7: Preview, verify and submit
Confirm declarant details and place of declaration.
Ensure all mandatory sections show Completed.
Click Preview and review the complete declaration.
Correct errors using Edit, if required.
Download a copy for records.
Click Proceed to E-Verify.
Complete verification through the permitted method—Aadhaar OTP, DSC or EVC, as applicable.
Confirm successful submission.
A green Completed status does not mean the declaration is legally correct. Successful electronic verification and submission are essential.
Resubmission: Form 1 may be resubmitted only until Form 2 is issued. The latest submission replaces the earlier declaration and carries its own submission date and legal consequences. After Form 2 is issued, resubmission is not permitted.
6. Form 2: obtain the amount determination
The prescribed authority issues Form 2 determining the amount payable, ordinarily within one month from the end of the month in which Form 1 is submitted.
Check the order against the categories, values and computation declared. Form 2—not merely the amount displayed in Part D—is the basis for payment.
7. Pay through ITNS 289
Make payment after Form 2 through the e-filing portal using Challan ITNS 289.
| Particulars | Corporate PAN | Non-corporate PAN |
|---|---|---|
| Major head | 0020 | 0021 |
| Minor head | 115 | 116 |
| Assessment year | 2026–27 | 2026–27 |
AY 2026–27 is prefilled irrespective of the year of acquisition or income.
Critical: Payment under an incorrect minor head cannot be corrected or refunded under the prescribed FAST-DS payment process. Verify the PAN category and challan particulars before payment.
Payment deadline and interest
Section 135(2) provides for payment within two months from the end of the month in which Form 2 is received. Section 135(3) permits a further period of up to two months, with simple interest at 1% for every month or part thereof on the outstanding amount.
The CBDT FAQ describes the Form 3 outer period as four months from the end of the month in which Form 2 is issued. Where issue and receipt dates differ, diarise both and ensure compliance with the statutory payment period and Form 3 deadline. Do not assume that a later receipt date automatically extends the outer period.
8. Form 3: intimate payment
After payment, electronically submit Form 3, with challan proof and applicable interest computation, within the prescribed period.
Retain Form 2, ITNS 289 challan, payment confirmation, interest computation and Form 3 acknowledgement.
Payment alone does not complete the Scheme. Form 3 is mandatory.
9. Form 4: obtain the certificate
After receiving Form 3, the prescribed authority issues Form 4, ordinarily within one month from the end of the month in which Form 3 is received.
Verify the declarant's name, PAN, declaration and payment particulars. Section 135(6) gives the certificate conclusive effect in respect of the matters stated in it.
Preserve Forms 1–4, challan, valuation workings and supporting evidence together. The compliance file should be closed only after Form 4 is obtained and checked.
10. Scope and limits of immunity
Subject to valid declaration and prescribed payment:
Section 136 excludes the declared income or investment in the declared asset from total income under the Income-tax Act, 1961 or the BMA.
Section 139 provides specified immunity from further tax, penalty and prosecution under the BMA in respect of the declared subject matter.
Section 140 prescribes exclusions.
Section 141 governs the treatment of pending assessment proceedings.
The immunity is limited to the income or asset declared. It does not provide blanket protection under FEMA, PMLA, foreign laws or for unrelated defaults.
Sections 137 and 138 also impose finality: amounts paid are non-refundable, and the specified rectification, revision, set-off or relief in respect of the declared subject matter is restricted.
Final decision checklist
| Before submission | Confirm |
|---|---|
| Default | Asset omission, income omission or both |
| Residential status | Relevant acquisition and income years |
| Relief | ₹20 lakh asset-related provisions and separate income exposure |
| Eligibility | Sections 131, 132 and 140 |
| Category | Category 1 or 2, asset by asset |
| Threshold | ₹1 crore and ₹5 crore limits separately |
| Valuation | Rule 3 as at 31 March 2026 |
| Evidence | Ownership, source, tax treatment and valuation |
| Form 1 | Correct categories and annexures |
| Form 2 | Authority's determination |
| Payment | Correct ITNS 289 heads and timely payment |
| Form 3 | Payment intimation and proof |
| Form 4 | Certificate obtained and verified |
CA. S.Ahuja Perspective
The costliest mistake may not be failure to disclose a foreign asset. It may be paying under the wrong category—or assuming that an explained investment also explains the income it generates.
FAST-DS should not begin with Form 1. It should begin with the facts: residential status, source, tax treatment, reporting history and legal exposure.
A taxpayer should not pay 60% where the statutory conditions support the ₹1 lakh route. Equally, the ₹1 lakh route must never be claimed merely because the original investment appears explained.
The real protection is a correctly classified and substantiated declaration, followed by timely payment, Form 3 and Form 4.
That is the difference between uploading a form and completing FAST-DS.
.png)
