Budget 2026 Introduces Amnesty Window for Small Taxpayers on Foreign Assets
In a significant move aimed at resolving long-pending cases of inadvertent overseas asset non-disclosures and promoting voluntary compliance, the Union Budget 2026-27 has proposed a fresh amnesty window for small taxpayers. This initiative comes alongside a relaxation of prosecution norms under the stringent Black Money law, marking a dual approach to address legacy issues and encourage transparency.
FAST-DS 2026: A Time-Bound Opportunity for Disclosure
The proposed Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026) offers resident taxpayers a time-bound opportunity to declare undisclosed foreign income and assets. This scheme arrives nearly a decade after the one-time compliance window provided in 2015, highlighting the government's ongoing efforts to tackle non-compliance, particularly in legacy cases.
According to the explanatory memorandum, persistent non-compliance often involves scenarios such as Employee Stock Ownership Plans (ESOPs) from overseas employment, dormant foreign bank accounts of former students, insurance or savings of returning non-residents, and assets held during overseas deputations. These cases have remained unresolved, necessitating a new framework.
Graded Framework for Different Scenarios
The FAST-DS 2026 scheme introduces a graded framework to cater to various taxpayer situations:
- Category 1: Taxpayers who have neither disclosed foreign income nor assets earlier, with aggregate undisclosed income or asset value up to Rs 1 crore, will be required to pay 30% tax on the fair market value or undisclosed income. Additionally, they must pay a 30% levy in lieu of penalty. In exchange, they will receive immunity from prosecution.
- Category 2: This category covers cases where income was disclosed or tax was paid, but the foreign asset itself was not declared. For such taxpayers, immunity from both penalty and prosecution will be available upon payment of a flat fee of Rs 1 lakh, provided the asset value does not exceed Rs 5 crore.
Expert Critique and Economic Implications
Sandeep Bhalla, partner at Dhruva Advisors, offered a critical perspective on the amnesty scheme. He described it as "a bit half-hearted" and questioned the rationale behind the limits imposed. Bhalla pointed out that there is no reason for a Rs 5 crore limit in cases where either Indian tax is paid in full or the asset was earned during the taxpayer's non-residency period, as such foreign income or assets would not be taxable in India anyway.
Similarly, he argued that even in cases where a 30% tax plus a 30% penalty is being collected, there was no need to limit disclosures to Rs 1 crore. Bhalla emphasized the broader economic benefit, stating, "There is a need for foreign exchange to come in and become part of the system," suggesting that higher limits could encourage more disclosures and boost foreign exchange inflows.
Relaxation of Prosecution Norms Under Black Money Act
Separately, the government has proposed easing prosecution provisions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for minor non-disclosures. Under the new proposal, residents will no longer face criminal action for foreign assets (other than immovable property) where the aggregate value does not exceed Rs 20 lakh.
This change is set to apply retrospectively from October 1, 2024, providing relief to taxpayers with smaller overseas holdings and reducing the legal burden for inadvertent omissions.
Context and Broader Budget Reactions
While the amnesty scheme and legal relaxations are key highlights, the Budget 2026-27 has sparked varied reactions. For instance, West Bengal Chief Minister Mamata Banerjee criticized the Centre's budget, labeling it a "Humpty Dumpty" budget and claiming it offers "nothing for the common man." Meanwhile, other aspects of the budget include changes in income tax slabs and adjustments in prices for various goods and services, which are being closely analyzed by taxpayers and economists alike.
The introduction of FAST-DS 2026 and the eased prosecution norms reflect a strategic effort to streamline compliance, address legacy issues, and potentially attract foreign exchange, albeit with some expert reservations about the scheme's limitations.
