Undisclosed foreign Esops? Settle now with ₹1 lakh penalty under new scheme

Under tax laws, all foreign assets must be disclosed annually in the FA Schedule of ITR-2 or ITR-3, even if they generate no income. Failure to report, even when there is no tax to pay, can attract a ₹10 lakh annual penalty and up to seven years imprisonment under the Act.

The budget has introduced a one‑time, six-month Foreign Assets of Small Taxpayers—Disclosure Scheme, 2026 (FAST-DS) that allows taxpayers to disclose foreign assets from any past years. But this relief is no free lunch, as taxpayers will be required to pay additional taxes and penalties, albeit lower than those slapped under black money Act. The government is yet to announce when the six-month timeline starts.

What is the relaxation?

The relief is extended to two categories of taxpayers. Category A includes those who have not disclosed foreign income or even assets that may not have generated any income. In such cases, the value of the assets eligible for amnesty should not exceed ₹1 crore, said Neeraj Agarwala, partner, Nangia & Co. LLP.

Category A taxpayers need to pay 30% of the asset’s fair market value (FMV) or 30% of undisclosed income as tax, plus an additional 30% tax, and get immunity from proceedings under the black money Act. Parizad Sirwalla, partner and head, Global Mobility Services-Tax, KPMG in India, explained that the second 30% additional tax is essentially the first tax paid twice, in lieu of a penalty, making the total outgo 60% of the asset’s FMV or the undisclosed income.

As per the Finance Bill 2026, the FMV to be taken is as of 31 March 2026.

Category B includes taxpayers who have paid tax on foreign income but failed to disclose the same assets in schedule FA. The value of such assets should be below ₹5 crore and the taxpayer has to pay a ₹1 lakh penalty to get amnesty.

Sirwalla said taxpayers who did not have any foreign income but failed to declare foreign assets will fall under Category A or B, depending on the source of funds used to buy the asset.

“In cases where the taxpayer has no explanation about the source of investment or the explanation given by him is unsatisfactory, he can seek amnesty under Category A by paying the higher penalties, but the eligible assets should not be worth more than ₹1 crore. In other cases where the investments are done through banking or other legitimate payment channels, the taxpayer falls under Category B and has to pay only ₹1 lakh penalty."

Despite the high penalties one has to cough up to get amnesty, Sonu Iyer, partner and national leader, People Advisory Services, EY, said it’s a sweeter deal than proceedings under black money Act.

"Under BMA (black money Act), the taxpayer has to pay ₹10 lakh penalty and an additional 300% of the tax due. Over and above that, there is also risk of prosecution and prolonged litigation if the taxpayer goes in appeal. In comparison, this scheme lets them declare voluntarily by paying a relatively lower penalty."

For example, you hold undisclosed dividend in the US worth ₹50 lakh. Under Category A, you can opt for amnesty by paying ₹15 lakh (30% of the income) plus another ₹15 lakh as tax, totalling ₹30 lakh.

However, if the case is examined under the BMA, you would have to pay 30% tax on the income ( ₹15 lakh), a penalty of 300% of this tax ( ₹45 lakh), and an additional ₹10 lakh penalty, taking the total liability to ₹70 lakh.

“The scheme applies to all assets held in all previous assessment years, as per the Finance Bill," said Iyer.

Who can get the relief?

The window will be available to all taxpayers with undisclosed income, assets, or both, where proceedings are not initiated or pending under the Prevention of Money Laundering Act, or where an assessment is not completed under the Black Money Act.

So taxpayers in these two situations can use the scheme: when they have not declared but not yet received a summons or notice from the tax department; those who have received a summons from the tax department seeking an explanation on non-disclosure, but the penalty order has not yet been passed under the black money Act.

“As per the Finance Bill, in case any proceedings are pending under the Income-tax Act, 1961 (IT Act 61) or the BMA, then the assessing officer shall take into account the declaration made by the taxpayer under this Scheme to finalise the assessment. So even if a taxpayer has received summons, they should use this scheme," said Sirwalla.

The finance minister in her speech said this scheme is intended to help small taxpayers such as students who have returned to India but still hold foreign bank accounts with small balances, young professionals and tech employees with foreign Esops and restricted stock units (RSUs) and relocated NRIs.

Prakash Hegde, a Bangalore-based CA, pointed out that most such tech employees with foreign stock options will fall under category B and only have to pay ₹1 lakh penalty.

“Tax on such Esop or RSU perquisites is withheld by the Indian employer at the time of allotment or transfer. So, the Esop/RSU does not constitute undisclosed income, and if the employee has failed to disclose these stock options in Schedule FA, the case will generally fall under Category 2, attracting only the ₹1 lakh penalty."

The other condition, that the source of funds for such undisclosed assets is also explained, keeps most such small taxpayers in Category B.

The biggest concern was for those taxpayers who have not paid tax on dividend income. “Many taxpayers assume tax is already paid abroad and that Indian tax applies only when dividends are repatriated. Such taxpayers must use this scheme to declare their dividends under Category A," Hegde said.

In the previous Budget, the penalty under the black money Act was waived for assets valued up to ₹20 lakh. This year’s Budget has also extended immunity from prosecution.

This scheme is aimed at small taxpayers and inadvertent non-compliance, so such taxpayers should utilise the scheme to become compliant, Iyer said.

“The authorities already have information on taxpayers from the Automatic Exchange of Information framework and follow-up NUDGE campaigns. A significant amount of foreign-earned income has already been reported, and taxes collected run into substantial sums," Iyer said.

"The scheme, therefore, is not about letting high-value non-compliance go unnoticed; instead, it is meant to facilitate voluntary compliance for legacy cases and smaller taxpayers, which explains the ₹1 crore and ₹5 crore limits imposed."