The new Foreign Assets of Small Taxpayers–Disclosure Scheme (FAST-DS), 2026, has opened a one-time window for taxpayers to clean up past omissions involving overseas income and assets. Depending on whether you have undisclosed foreign income or assets or both, you can voluntarily declare these by paying a penalty. Voluntarily opting for FAST-DS can secure immunity from tax, penalties and prosecution under the Black Money Act (BMA).
However, there is a second option for taxpayers: an updated return, or ITR-U. In some cases involving undisclosed foreign income, filing an ITR-U could result in a considerably smaller bill.
What is ITR-U
An updated income-tax return gives taxpayers a second chance to report income omitted from an earlier tax return. It can also be filed if no ITR was filed for that year.
The taxpayer first calculates the normal tax due on the additional income and the interest payable for the delay, and then pays an additional tax depending on how late the ITR-U is being filed. Interest is calculated at 1% per month from the first month of the assessment year to which the income relates.
The ITR-U may be filed up to 48 months after the end of the relevant assessment year. So this year, ITRs for AY 22-23 (FY22), AY 23-24, AY 24-25, and AY 25-26 can be updated or filed.
The longer a taxpayer waits, the more expensive this route becomes. If an ITR-U is filed within 12 months from the end of the relevant assessment year, the additional tax is 25% of the tax and interest due. This rises to 50% if it is filed after 12 months but within 24 months, 60% after 24 months but within 36 months and 70% after 36 months but within 48 months. So for ITR relating to AY 22-23, 70% of the due tax plus interest is to be paid as a penalty.
While penalties under ITR-U are also steep, in some cases of undisclosed foreign income, disclosure under FAST-DS may be less expensive. This is because FAST-DS imposes a penalty of 60% of income plus the value of undisclosed assets, along with the due tax.
Take this example. Say a salaried individual had earned a dividend worth ₹10 lakh on his US shares under the reinvestment option in FY24 (AY24-25). He failed to declare them in Schedule FA as the money got reinvested, and he didn’t notice the credit. He can opt to declare this under FAST-DS by paying 60% of ₹10 lakh, i.e., ₹6 lakh. Or he can file ITR-U, where the total outgo is much lower.
- FAST-DS offers statutory immunity from prosecution under the Black Money Act for omissions.
- ITR-U can lower tax liability compared to FAST-DS rates.
- Foreign Tax Credit applies to ITR-U, directly reducing Indian tax outgo.
- ITR-U cannot declare assets alone without reporting missed additional income.
- High tax slabs make FAST-DS competitive with late ITR-U penalty structures.
Harshal Bhuta, partner at P. R. Bhuta & Co., CAs, said that under ITR-U, foreign tax credit (FTC) is available if the taxpayer has already paid tax in a foreign country. FTC lets you adjust foreign taxes against your Indian tax liability directly while filing your ITR. In the example above, a 25% tax would have been withheld in the US. So, the taxpayer has to essentially pay 5% tax on ₹10 lakh, which is ₹50,000. After adding interest and 50% penalty, the total tax liability comes to about ₹1 lakh.
Take another example: the taxpayer sold his US shares and didn’t pay capital gains tax on ₹20 lakh in gains in India. While under FAST-DS, he would pay 60% on the gains, i.e, ₹12 lakh, the long-term capital gains tax rate is just 12.5% if the same is reported under ITR-U. Even with the highest penalty of 70% if the sale occurred in FY22, you stand to pay lower tax and penalty of about ₹6.5 lakh, almost half of what you would pay by opting for FAST-DS.
In the above examples, ITR-U can also help if the taxpayer failed to disclose the foreign shares from which the dividend or capital gains arose. “ITR-U cannot be used merely to disclose an undeclared asset under Schedule FA (foreign assets). However, if additional income is also being reported and tax is paid on it, the taxpayer can use the ITR-U to disclose the missed foreign asset as well,” said Bhawna Kakkar, chartered accountant and founder of Kakkar & Co., Chartered Accountants.
Bhuta concurred and added that a taxpayer can file ITR-U even if there is ₹1 in income to be reported, resulting in additional tax. "This can be useful for employees with foreign Esops. When such Esops are exercised, the foreign company sells 30% of the shares to cover taxes. This amounts to the sale of shares, and the taxpayer has to declare capital gains, which is negligible as the cost of acquisition and sale is on the same day. But, as per laws, it must be disclosed in the Indian ITR as capital gains even if it's a few cents with minuscule tax," he explained.
Taxpayers facing this can use ITR-U to report the gains if their Esops exercise year falls in the ITR-U window.
ITR-U is not, by default, a better option
The ability to file an updated tax return is foremost dependent on whether you meet the conditions attached to it.
“A taxpayer may not be able to file an ITR-U if the four-year deadline has passed or certain restrictions apply. For instance, if the updated return claims a refund, the ITR filed for the relevant year is under scrutiny or the tax department has received and communicated information about the missed foreign assets or income under the Black Money Act,” said Sonu Iyer, partner and national leader, People Advisory Services - Tax, EY India.
Most importantly, ITR-U cannot be used to just declare foreign assets if there is no income and additional tax to be paid. In that case, taxpayers must opt for FAST-DS under category 2, disclose the asset, and pay a flat ₹1 lakh penalty. So only those taxpayers with undeclared foreign income should consider ITR-U as an alternative.
Even if you qualify for ITR-U, remember that ITR-U does not give you immunity from Black Money Act, said Bhuta. “The tax department can scrutinise under the BMA if it has reasons. FAST-DS gives complete immunity from BMA,” he said.
Iyer concurred and added that while both the updated tax return and FAST-DS are intended to encourage voluntary tax compliance, FAST-DS provides an express statutory immunity framework under the Black Money Act and Imposition of Tax Act, 2015. “Whereas there may still be an ambiguity under the updated tax return mechanism, wherein, due to a lack of explicit provision, penalty of ₹10 lakh under the Black Money Act may still apply.”
Also, you must calculate net liability under both ITR-U and FAST-DS to check whether the former is economical. Liability under ITR-U may be the same as or higher than FAST-DS if the foreign income to be declared is taxed at higher slab rates of 30%, such as foreign pension income. With a 30% tax rate, interest, and a 50-70% penalty, the net liability may be the same as or higher than FAST-DS.