How Does Budget 2026’s Voluntary Disclosure Scheme Treat Undisclosed Foreign Income?

The Union Budget 2026 has introduced a time‑bound voluntary disclosure scheme for individuals holding previously undisclosed foreign income or overseas assets. This scheme is aimed at providing taxpayers an opportunity to correct past omissions relating to foreign holdings.

It allows declarations of income or assets that were not taxed earlier or were not reported in Schedule FA of the income tax return. The government will separately notify the effective date, filing deadline and procedural requirements for the scheme.

Framework Of the Voluntary Foreign Asset Disclosure Scheme

The scheme has been designed to address non‑reporting and partial reporting of foreign income or overseas assets. It covers two distinct categories based on the nature and extent of non‑disclosure.

The provisions apply to income or assets that were previously either not offered to tax or not disclosed in Schedule FA. Taxpayers will be able to regularise such omissions within a defined six‑month compliance window.

Category A: Complete Non‑Disclosure Up To ₹1 Crore

Category A applies to taxpayers who have entirely failed to disclose foreign income or overseas assets. This includes undisclosed income arising from dividends, foreign shares or any other foreign‑sourced earnings.

The category is restricted to cases where the value of undisclosed assets or income does not exceed ₹1 crore. It is intended to bring to light complete omissions that occurred in earlier assessment years.

Category B: Reported Income but Unreported Foreign Assets Up To ₹5 Crore

Category B covers situations where the income derived from foreign assets has already been disclosed and taxed in India. However, the foreign asset itself was not reported in Schedule FA, despite being acquired from explained and legitimate sources.

The value limit under this category is capped at ₹5 crore across foreign bank accounts, stocks, ESOPs, RSUs, real estate or financial interests. It also includes signing authority in overseas accounts, even where no income was generated.

Consequences Of Not Using the Disclosure Window

Taxpayers who fail to make declarations within the six‑month window will face stringent consequences under the Black Money Act. These include a 30% tax on undisclosed foreign income, along with penalties that may reach up to three times the tax amount.

A fine of ₹10 lakh per asset per year may also be imposed for continued non‑reporting of foreign assets. Additional repercussions include possible imprisonment ranging from six months to seven years, reopening of assessments for up to 16 years and denial of Double Taxation Avoidance Agreement relief.

Read More: Finance Bill 2026 Tightens Rules for Updated Income‑Tax Returns Amid Reassessments.

Conclusion

The voluntary disclosure scheme forms a key compliance initiative under the Union Budget 2026. It offers taxpayers a limited opportunity to correct past omissions related to foreign income or overseas assets. With differential provisions under Category A and Category B, the framework attempts to balance disclosure incentives with accountability. The government will release further operational details, including the effective date and filing process, through subsequent notifications.

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