Taxpayers alert! Weak rupee may push foreign assets above Rs 1cr, raising tax bill

Income tax alert! If you have foreign assets then you need to be mindful of the negative impact on your tax outgo that the recent decline in rupee’s value versus the US dollar could have had.The Income Tax Department has announced a one-time voluntary disclosure window, which opened on August 16. It allows individuals to regularise their overseas shares, properties, ESOPs, dividends, interest and other such assets by paying 60% in tax and penalty, for amounts up to 1 crore.In fact, the rupee’s decline over the years, strict valuation requirements and the fact that many amounts exceed the prescribed lower limits are discouraging several taxpayers from disclosing previously unreported foreign income and assets.What is the foreign asset disclosure scheme about?The rules specify March 31, 2026 as the exchange-rate date for converting the value of dollar-denominated assets into the Indian rupee, but do not clearly state which date should be used for converting foreign incomeWith the rupee having declined by 14-33% over three to seven years, many taxpayers could find that their holdings cross the 1 crore threshold if March 31 is used for the currency conversion. And that is the reason for them to worry about a higher tax outgo.There are, however, differing views on the issue.Ved Jain, former ICAI president, said that under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015, the valuation date for an undisclosed foreign asset is the date on which the asset comes to the assessing officer’s notice.He told ET that the scheme therefore takes March 31, 2026 as the valuation date for income as well, providing clarity on eligibility and the calculation of tax and penalty.Chartered accountant Ashish Karundia, however, takes a different view.“Undisclosed foreign income means income from a source outside India that was chargeable to tax in India but not offered to tax under the 1961 I-T law. The starting point is to determine how that income would have been computed and offered to tax under existing law. This requires reference to the I-T Rules, 1962, including Rule 115, which prescribes conversion of foreign-currency income. Thus, the applicable rate is the one that prevailed during the year income was earned,” he told the newspaper.Updated Income Tax Returns in FocusNow, taxpayers with undisclosed income of over Rs 1 crore, such as Rs 2 crore, are looking at ways to use both an ‘updated return’ and the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS).Since the tax payable through an updated return could be higher, an assessee may potentially save Rs 30-40 lakh.The Rs 1 crore ceiling has created an incentive to divide undisclosed income between an updated return and FAST-DS, by declaring the amount above Rs 1 crore through the updated return and using FAST-DS for the remaining amount, said chartered accountant Harshal Bhuta.Although the approach may appear beneficial because of a tax difference of up to 40%, as well as immunity from penalty and prosecution, Bhuta warned that a FAST-DS declaration could be considered void if authorities find misrepresentation or suppression of facts. This could leave the taxpayer without recourse later, he said.The scheme is intended to give assessees an opportunity to rectify genuine errors. It permits the declaration of foreign assets worth up to Rs 5 crore that were acquired using tax-paid money by residents under the liberalised remittance scheme, as well as by returning NRIs who failed to disclose foreign accounts. However, the valuation provisions can lead to unexpected outcomes.For several categories of foreign assets, the value is generally determined as the higher of the acquisition cost or market value. “If an overseas asset bought for 5.25 crore is today worth only 3 crore, its value for the scheme may still remain 5.25 crore. The taxpayer could therefore fall outside the scheme,” said advocate Priyanshi Chokshi.If the required valuation has not been carried out, the indexed cost of acquisition is treated as the deemed fair market value. For instance, a property purchased for Rs 4 crore may currently be worth Rs 3.5 crore, but if its indexed cost is Rs 5.2 crore, that higher figure could push the taxpayer beyond the Rs 5 crore eligibility limit.“In borderline cases, valuation is not merely a compliance exercise. It could decide eligibility itself. Some clarification on falling-value assets and borderline cases would help,” said Chokshi.Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS): FAQsBelow are some Frequently Asked Questions answered by the Income Tax Department about the new scheme:What is the Foreign Assets of Small Taxpayers - Disclosure Scheme, 2026? It is a one-time voluntary disclosure scheme contained in Chapter IV (sections 130 to 144) of the Finance Act, 2026. It enables eligible taxpayers to declare certain undisclosed foreign assets, undisclosed foreign income, or undeclared foreign assets, on payment of a specified tax or fee.What does the Scheme commence? The Scheme comes into force on 16th August, 2026.What is the “last date” for filing a declaration? The last date has been fixed as 31st December, 2026. No declaration can be filed after this date.What is the “valuation date” for the Scheme? The valuation date is 31st March, 2026. The fair market value of assets proposed to be declared must be computed as on this date.Which income-tax authority administers declarations under the Scheme? The “income-tax authority” for the purposes of the Scheme is the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be. The entire process will be done online.What is the amount payable for a declaration under Section 133 – (Table: Sl. No. 1)? The total amount payable would be the aggregate of - (i) tax of 30% of the value of the undisclosed asset located outside India or 30% of the undisclosed foreign income declared...