�CA NITIN PATHAK

�Past PRESIDENT ISACA CHAPTER AHMEDABAD

BLOG: canitinmpathak.blogspot.com

E-mail: nitinmpathak@gmail.com

You Tube : CA Nitin Pathak

M. 98258 04094

Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• The Union Budget 2026 marks a significant policy intervention in the domain of international taxation and compliance with the introduction of the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (the Scheme). The Scheme provides a limited-period opportunity to specified taxpayers to voluntarily disclose certain undisclosed foreign assets or foreign income and obtain immunity from further tax consequences, penalties, and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”).
• The Scheme reflects a calibrated approach by the legislature balancing strict enforcement against willful tax evasion with relief for small taxpayers, returning non-residents, and cases involving inadvertent or technical reporting failures.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Legislative Framework and Commencement
• The Scheme is contained in sections 114 to 128 of the Finance Act, 2026. It shall come into force from such date as may be notified by the Central Government and shall remain open until a “last date” notified in the Official Gazette. The Central Board of Direct Taxes (CBDT) has been vested with wide powers to issue directions, prescribe procedures, relax provisions in public interest, and frame rules for effective implementation of the Scheme.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Applicability:
• The Scheme applies to 
• A person who are resident in India within the meaning of section 6 of the Income-tax Act, 1961 
• A person who are currently non-resident or not ordinarily resident, but were resident in India either in the year to which the undisclosed foreign income relates or in the year in which the foreign asset was acquired.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Exclusion from scheme
• The Scheme does not apply to income or assets representing proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002. It is also inapplicable to cases where assessment proceedings under the Black Money Act have already been completed.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Eligible Assets and Income 
• The Scheme permits declaration of undisclosed assets located outside India, including financial interests in foreign entities held directly or beneficially, where the source of investment is unexplained or considered unsatisfactory. It also covers undisclosed foreign income, being income from sources located outside India that was chargeable to tax in India but was not offered to tax under the Income-tax Act. Declarations may be made for any previous year, including years prior to the previous year ending 31 March 2026.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Conditions for Making a Declaration
• A declaration may be filed where the assessee has 
• failed to furnish a return of income, or 
• has furnished a return but failed to disclose the relevant foreign asset or income, or
• where such income or asset has escaped assessment under section 147 of the Income-tax Act, 1961.
• The declaration should be filed electronically in the prescribed form. Any false statement or violation of the conditions of the Scheme renders the declaration invalid.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Categorisation and Amount Payable
• The Scheme adopts a two-tier structure that distinguishes between substantive tax evasion and mere reporting or disclosure lapses.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• * Apparently, it seems that the flat fee of INR 1 lakh is payable once per declarant (per declaration), and not year-wise, provided all eligible reporting defaults are covered in one declaration. However, if multiple separate declarations are filed (instead of one consolidated declaration), the department may levy the fee per declaration. Final clarity may also emerge through CBDT Rules / FAQs / Forms, once notified.

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Procedure and Payment 
• After electronic verification of the declaration, the prescribed income-tax authority shall issue an order electronically determining the amount payable. The declarant is required to make payment within two months from the end of the month in which the order is received.
• An additional period of up to two months is available for payment along with simple interest at the rate of 1% per month. Upon payment and submission of payment intimation, a certificate confirming compliance under the Scheme is issued electronically. Such certificate is conclusive as to the matters stated therein.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Tax Consequences
• Income or assets validly declared under the Scheme shall not be included in the total income of the declarant under either the Income-tax Act, 1961 or the Black Money Act, 2015.
• Amounts paid under the Scheme are non-refundable. Further, the declarant is not entitled to seek rectification, revision, set-off, or appellate relief in respect of the income or asset declared, ensuring finality of proceedings.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Immunity from Penalty and Prosecution
• A declarant who makes a valid declaration and pays the prescribed amount is granted immunity from any further tax, penalty, or prosecution under the Black Money Act in respect of the income or asset so declared, for the previous year ending 31 March 2026 and all earlier years.
• Effect on Pending Assessments
• Where assessment proceedings under the Income-tax Act or the Black Money Act are pending in respect of the income or asset declared under the Scheme, the Assessing Officer is required to take such declaration into account while finalising the assessment.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Conclusion:
• The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 represents a pragmatic compliance initiative that seeks to balance enforcement with fairness. By clearly distinguishing deliberate evasion from genuine disclosure lapses, the Scheme provides a valuable opportunity for small taxpayers and returning NRIs to regularise past non-compliances with certainty and legal finality.
• The effectiveness of the Scheme will depend upon clarity in subordinate legislation, valuation rules, and timely implementation. Nevertheless, the Scheme marks a constructive step towards enhancing voluntary compliance in the international tax framework.

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Buyback of Shares and Capital Gains

• The treatment of share buybacks has shifted back toward Capital Gains for non-promoter shareholders, rather than being treated as Deemed Dividend in all cases.
• For Promoters: If the promoter is a company, the tax rate on buyback gains effectively remains higher (balancing the 22% corporate rate against capital gains rates). If the promoter is an individual, they may have to pay additional income tax to bring the total tax to the 30% slab
• For Regular Investors: Buybacks will now generally result in a 12.5% tax (if Long Term) or 20% (if Short Term)

Major Changes in Taxation (Income Tax Act 2025)

• Motor Vehicle Accident Interest: Entire interest received from motor vehicle accident claims is now fully exempt under Schedule III of the new Act.

Consequently, no TDS is required to be deducted on such interest

Major Changes in Taxation (Income Tax Act 2025)

• Employee Contribution to PF/ESI: A significant relief has been provided regarding the deduction of employee contributions to welfare funds.
• Previously, if the payment was delayed even by a day past the due date under the respective Act (PF/ESI Act), the deduction was permanently lost.
• Under the new provisions, as long as the payment is made on or before the due date of filing the Return of Income, the deduction will be allowed, aligning it with the treatment of employer contributions .

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Major Changes in Taxation (Income Tax Act 2025)

• Simplification of Form 15G/15H:
• Instead of submitting these forms to every individual company, taxpayers can now submit them to their Depository.
• The Depository will then be responsible for forwarding these to the respective companies quarterly

Major Changes in Taxation (Income Tax Act 2025)

• TDS on Immovable Property for Non-Residents:
• The requirement to obtain a TAN for depositing TDS on the purchase of immovable property from non-residents has been removed. Tax can now be deposited using only the PAN, similar to transactions with residents

��STT (Securities Transaction Tax): Hiked significantly to curb speculative trading.�

• Futures: Increased from 0.02% to 0.05%.
• Options Premium: Increased from 0.10% to 0.15%.

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Filing Returns and New Due Dates

• 31st July: For individuals/entities with no business income (Form 1 & 2).
• 31st August: New Date for non-audit business cases, professional income cases, and non-audit trusts.
• 31st October: For audit cases and companies.
• 30th November: For cases requiring Transfer Pricing reports (Section 172/Old 92E).
• Revised Returns: The window for revising a return has been extended by three months (up to 31st March). However, a mandatory fee (₹1,000 or ₹5,000 depending on income) applies for this late revision

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���New Income Tax Act, 2025���

• Effective Date: April 1, 2026.
• Simpler Compliance: Redesigned ITR forms and simplified rules to be notified soon.
• Single "Tax Year": Replacing the distinction between "Assessment Year" and "Previous Year" with a unified "Tax Year" framework.

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Tax Rates and Penalties (Section 195 / Old 115BBE)

• The base tax rate for unexplained credits/investments has been reduced from 60% to 30%.
• However, the penalty for such cases has been increased to 200%.(under-reporting of income is in consequence of misreporting)
• If paid 120 % immunity may be granted

��������Miscellaneous�������

• NPS Vatsalya: Additional deduction under Section 80CCD (1B) for parents investing for their children (Old Regime).
• Manpower Supply TDS: Clarified to fall under "work" contracts (Section 194C) with TDS rates of 1% or 2% to reduce ambiguity.
• Sovereign Gold Bonds (SGB): Exemption on maturity now only applies to original subscribers; secondary market purchases will be taxable.
• PAN-based TDS for NRIs: Resident buyers can now use their PAN instead of TAN to deposit TDS when buying property from non-residents

���������Stay of demand: �������

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• Presently, a taxpayer can obtain a stay of demand on an order which is in appeal by paying 20% of the amount payable under the Act (including the amount of tax, interest, fee, penalty, or any other sum). The stay can now be availed by paying only 10% of the amount of tax.

�������MAT Provision������

• It is proposed that the tax paid under provisions of MAT be made as final tax in the old regime and no new MAT credit may be allowed.
• However, the tax rate of MAT has been reduced to 14% of book profit from the existing 15%. Further, set-off of MAT credit may be allowed only in the new tax regime for domestic companies to the extent of 25% of the tax liability.
• In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax, for the tax year in which normal tax is more than MAT.

������Exclusion of specified business of Non-residents which are under presumptive taxation from the applicability of MAT�����

• In order to ensure similar treatment among all the different specified businesses of non-residents opting for presumptive taxation, it is proposed that two other specified businesses (business of operation of cruise ships and the business of providing services or technology for the setting up an electronics manufacturing facility in India to a resident company) shall also be excluded from the applicability of MAT

������Imposition of penalty for under-reporting or misreporting of income within Assessment Order:����

• Old provision mandates separate proceeding for penalty and assessment
• New provision recommend both assessment and penalty simultaneously.
• Penalty / interest will be levied only after assessment at CIT level completed.
• Section 245MA of the 1961 Act, provides for the Dispute Resolution Committee

(DRC).(corresponding changes are made)

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���Extending the period of filing revised return���

• Section 263 of the Income-tax Act, 2025 deals with filing of Income-tax return by taxpayers.
• The said section prescribes the comprehensive framework that lays down class of persons who are required to file a return, the due dates, and the different types of returns that may be furnished.
• It covers the original return, belated return, revised return and updated return.
• A time limit for the same is extended from nine months to twelve months with a prescribed fees.

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������Exemption to a FC on any income arising in India by way of procuring data center services from a specified data centre.�����

• One of the conditions for exemption is that where services are provided to India users by the foreign company, it shall be routed through an Indian reseller entity.
• For the purposes of above provisions, it is also proposed to define the following
• terms, namely:
• “data centre” means a dedicated secure space within a building or centralised location where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing or allowing access to large amounts of data;
• “data centre services” means services provided by a data centre through the use of physical infrastructure including land, buildings, mechanical electrical power equipment’s, cooling system, security and information technology infrastructure including servers, computers, storage systems, operating systems, security solutions, network and associated software platforms, networking and other equipment, human resource in India;

������Exemption to a FC on any income arising in India by way of procuring data center services from a specified data center.�����

• The existing provisions of section 11 read with Schedule IV of the Act specifies the eligible income, which shall not be included in the total income of the eligible non-residents, foreign companies and other such persons.
• In order to attract investment in data center and promote artificial intelligence data center framework in India, it is proposed to amend the Schedule IV to provide exemption to a foreign company, on any income accruing or arising in India or deemed to accrue or arise in India by way of procuring data center services from a specified data center, for a period up to tax year ending on 31st March, 2047.

������Exemption to a FC on any income arising in India by way of procuring data center services from a specified data centre.�����

• “specified data center” means a data center which––
• (i) is set up under an approved scheme and is notified in this behalf by the Central Government in the Ministry of Electronics and Information Technology; and
• (ii) is owned and operated by an Indian company.
• These amendments will take effect from the 1st day of April, 2026 and shall
• accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.

Exemption to a foreign company on income arising on account of providing capital equipment etc. to an electronic goods manufacturer located in a custom bonded area

• In order to promote manufacturing of electronic goods by a contract manufacturer and provide certainty on taxation of supply of capital equipment by a foreign company to such manufacturer, it is proposed to amend the Schedule IV to provide exemption to a foreign company for a period upto the tax year 2030-2031, on any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India, who is located in a custom bonded area (warehouse referred to in section 65 of the Customs Act, 1962) and produces electronic goods on behalf of such foreign company for a consideration.

Exemption to non-residents for rendering services under a notified Scheme in India.

• In order to provide tax certainty to a non-resident individual visiting India for rendering certain services in connection with any notified Scheme of the Central Government, it is proposed to amend the said Schedule to provide exemption to an individual, being a non-resident for a period of five consecutive tax years immediately preceding the tax year during which he visits India for the first time for rendering services, on any income which accrues or arises outside India, and is not deemed to accrue or arise in India, for five consecutive tax years commencing from the first tax year during which he visits India, if such person renders any service in India in connection with any Scheme as may be notified by the Central Government and fulfils such other conditions as may be prescribed.

��������Extension of period of deduction for units in IFSC and rationalization of tax rate�▪ ������

• The provisions of section 147 provide for deduction of 100% on certain incomes to the units of IFSC and OBUs.
• This is available for 10 consecutive years out of 15 years for units in IFSC and 10 consecutive years for OBUs.
• To increase the competitiveness of IFSC, it is proposed to increase the period of deduction to 20 consecutive years out of 25 years for units in IFSC and 20 consecutive years for OBUs.
• It is also proposed that the business income of these units from IFSC after the expiry of period of deduction will be taxed at rate of 15%.

�������Non-allowability of Interest as a deduction against Dividend Income������

• Dividend income and income from units of mutual funds constitute passive investment receipts taxable under the head “Income from other sources” under the Income tax Act, 2025.
• Section 93 of the Act provides for allowing certain deductions against such income, i.e interest expenditure incurred for earning such income, subject to a ceiling of twenty per cent of the gross dividend or income from units of mutual funds.
• It is proposed to amend section 93(2) to provide that no deduction shall be allowed in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds.
• The amendment will take effect from the 1st day of April, 2026 and shall accordingly apply for tax year 2025-26 onwards.

�������Enabling electronic verification and issuance of certificate for deduction of income-tax at lower rate or no deduction of income-tax������

• Section 395 of the Act pertains to issuance of certificates for deduction of tax at source (TDS) and tax collection at source (TCS) at nil or lower rate.
• It is proposed to ease the compliance burden of small taxpayers by providing an option to the payee, to file the application for issuance of certificate for lower or nil deduction of income-tax electronically before the prescribed income-tax authority, which may issue the certificate subject to fulfilment of conditions as may be prescribed, or reject the application if prescribed conditions are not fulfilled or the application is incomplete.

Deductions in respect of dividends received and distributed by certain cooperative societies

• It is proposed to allow deduction on dividends received by cooperative societies from other cooperative societies, to the extent such dividends are distributed to its members, in the new tax regime.
• It is also proposed to allow deduction for dividends received by notified federal cooperatives from companies for 3 years, i.e. till tax year 2028-29 under both the old and new tax regimes.
• This deduction is proposed to be allowed only to the dividends arising out of investments made by the federal cooperative till 31.01.2026 and which are further distributed by it to its members.

Widening scope of deduction under section 149 by including ancillary activities of cattle feed and cotton seeds

• Activity scope is expanded

Amendment of section 169 of the Income-tax Act, 2025 relating to providing effect to advance pricing agreements

• Any changes in APA will effect subsequent changes in associated enterprise will allow them to file revised return with in three months

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Allowing expenditure on prospecting of critical minerals as deduction

• Section 51 of the Act provides for tax deductibility of expenses incurred by an Indian company or resident taxpayers (other than companies) engaged in any operations relating to prospecting or extraction or production of the minerals mentioned in Part A and Part B of the Schedule XII of the Act.
• This section allows deduction, on deferred basis (over a span of 10 years from the year of commercial production of any specified mineral), in respect of expenses incurred wholly and exclusively on operations relating to prospecting or on the development of mine or other natural deposit of specified minerals incurred at any time during the year of commercial production and any one or more of the four years immediately preceding the year of commercial production.

Assessments not to be invalid on ground of any mistake, defect or omission on account�of computer-generated DIN, if such assessment is referenced by computer generated�DIN in any manner.

• Any mistake, defect or omission in respect of quoting of a computer generated Document Identification Number, if such assessment order are referenced by such number in any manner. Further, this amendment seeks to clarify as long as there is a reference of DIN in the assessment order, the same would be sufficient compliance even if there may be some minor mistakes, defects or omissions in notices or summons in relation to such assessment.

Clarifying time-limit for completion of assessment under section 144C

• It is proposed to clarify in section 153 and section 153B that time lines in these sections govern the draft order stage and the timelines provided in section 144C operate for finalization of assessments, notwithstanding the time limit provided in section 153 and section 153B.

Clarifying the manner of computation of sixty days for passing the order by the Transfer Pricing Officer

• Section 92CA of the Income-tax Act, 1961 deals with the case where assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer (AO) may refer the computation of the arm's length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer (TPO).
• Many judgment for number of days how 60 days needs to be calculate is being challenge The corresponding clarity in section that 153/153C limitation period does not affect due to TPO

Amendments in Chapter XIII -G for giving effect to extension of Tonnage tax scheme to Inland Vessels

• Chapter XIII-G of the Act provides for special provisions relating to income of shipping companies. Vide Finance Act, 2025, benefit of tonnage tax scheme under the said Chapter was extended to Inland vessels registered under Inland Vessels Act, 2021 to promote the inland water transportation.

Correction in provisions relating to Income from House Property and PAN Number:

• This provision requires PAN number of income from house property�But same shall apply for developer after two years

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Clarifying repeal & savings clause where amount allowed as deduction earlier is to be treated as income in a later year

• Any income not booked under old act and receipt in new act and vice versa for expenses is mentioned in the Section 536(2)(h)

Referencing the time limit to complete block assessment to the initiation of search or requisition

• Section 296 of the Act, provides for time limit for completing a block assessment. An assessment or reassessment order under Section 294 (procedure for block assessment) must be completed within 12 months from the end of the quarter in which the last search authorization was executed or requisition was made.
• Accordingly, it is proposed to amend the section 296 of the Act so as to take the date of initiation of search as the reference point to decide the date of limitation for block assessment where any search has been initiated or requisition is made in the case of any person and consequently, the period of twelve months is proposed to be to eighteen months to complete such assessment in case of such person.

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Allowing the filing of updated return after issuance of notice of reassessment:

• Section 263 of the Income Tax Act, 2025,
• Furthermore, Section 263(6)(c)(v) of the Act prohibits the filing of updated return in such cases where any proceedings for assessment or reassessment or

recomputation or revision of income is pending or has been completed for the said tax year. Accordingly, filing of update return was not allowed in such cases where proceedings of reassessment has been initiated.

• In this regard, it is considered that updated return may also be allowed in such cases where proceedings of reassessment have been initiated and notice of reassessment has been issued under section 280 of the Act as the same would reduce litigation.
• Condition additional 10% shall be payable on aggregate of tax and interest.

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Relaxation of conditions for prosecution under the Black Money Act:

• sections 49 and 50 to provide that these provisions shall not apply in respect of foreign assets, other than immovable property, where the aggregate value does not exceed twenty lakh rupees.

Rationalizing the period of block in case of other persons

• Section 295 of the Act, provides, inter-alia, that where Assessing officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person (herein after referred to as the ‘other person’), other than the person (herein after referred to as the ‘specified person’) with respect to whom search was initiated under section 247 or requisition was made under section 248, then
• (a) any money, bullion, jewellery, virtual digital asset or other valuable article or thing or any books of account or other documents seized or requisitioned or any other material or information relating to the aforesaid undisclosed income will be handed over to the Assessing Officer having jurisdiction over such other person; and
• (b) Assessing Officer of the other person shall proceed under section 294 against such other person and the provisions of this section will apply accordingly.
• Only for that relevant assessment year.

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Exemption for Disability Pension to armed force personnel�

• Disability pension is granted to members of the Armed Forces, was available during the retirement ot otherwise will countinue.
• This, exemption will be available to paramilitary forces also

�������Rationalization of penalties &prosecution: ������

• Following offences are now fully decriminalized:
• Failure to produce the books of accounts and documents.
• Failure to pay or ensure the payment of tax where payment is made

(i) “wholly or partly” in kind. In case of benefits or perquisites provided in the course of business or profession, in case of winnings from a lottery, crossword puzzle).

(ii) wholly in kind in case of payments made for online games and for the transfer of Virtual Digital Assets.

������Expanding the scope of immunity from penalty or prosecution under section 440 of the Act-�����

• Procedure:
• Assessing Officer from imposition of penalty or prosecution, if assessee fulfils the following conditions, namely: –
• (a) the tax and interest payable as per Assessment order, has been paid within the period specified in notice of demand;
• (b) no appeal against the such assessment order has been filed.

������Expanding the scope of immunity from penalty or prosecution under section 440 of the Act-�����

• Further, sub-section (2) provides that assessee shall file an application within one month from the end of the month in which said assessment order has been received by him.
• Furthermore, sub-section (3) provides that assessing officer shall, subject to the fulfilment of the aforementioned conditions, and after the expiry of the period of filing the appeal, grant the immunity from imposition of penalty under section 439 and initiation of prosecution proceedings under section 478 or section 479.
• Further, sub-section (4) provides that Assessing Officer shall pass an order accepting or rejecting the application, within a period of three months from the end of the month in which the application for requesting immunity is received.
• In this regard, it has been considered that provision of immunity should also be extended to such cases where under-reporting of income is in consequence of misreporting.
• However, the taxpayer is required to pay an additional income-tax to the extent of 100% of the amount of tax payable on such income in lieu of the penalty.

������Expanding the scope of immunity from penalty or prosecution under section 440 of the Act-�����

• Additionally, as the separate penalty (existing penalty under section 443 of the Act) for income determined by AO, which is in the nature of income referred to in section 102 to 106 (unexplained credits, unexplained investment, unexplained asset etc ) of the IT Act, 2025 is proposed to be omitted and subsumed in cases of misreporting of income under section 439(11), therefore immunity provision for the same is also proposed in section 440, to provide opportunity to the taxpayers to settle the disputes at an early stage on payment of additional-tax and reduce the burden of litigation and compliance.
• However, the taxpayer is required to pay an additional income-tax to the extent of 120% of the amount of tax payable on such income in lieu of penalty.

���Decriminalisation of IT provision���

• In this regard, it is proposed to amend Section 473 to 485 & 494 of the Act in light of continued exercise of decriminalization and to make the punishment for the offences mentioned in these sections proportionate to the crimes. The principles that are followed in the proposed decriminalization exercise are as follows:

���Decriminalisation of IT provision���

• (a) The nature of punishment is changed from rigorous imprisonment to simple imprisonment wherever prescribed in the sections mentioned above.
• (b) Maximum punishment is proposed to be limited to 2 years from its current 7 year and for the subsequent offences, it is reduced to 3 years from its current 7 years.
• (c) Wherever punishment of offences is prescribed based on certain grading of amount of tax evaded, new grading of offences and its corresponding punishment is prescribed.
• (d) For amount of tax evaded does not exceeds ten lakh rupees, punishment of only fine is prescribed.
• (e) Imposition of fine is introduced in lieu of or in addition of imprisonment.
• (f) Certain offences are fully decriminalized.

���Decriminalisation of IT provision���

• Following changes in the nature and period of punishment in section 473 to 485 & 494 are proposed based on the principles of decriminalization followed as discussed in para 7:
• (a) In section 473, punishment for the offences mentioned under section 473 is proposed to be changed from its current “rigorous imprisonment for a term which may extend to two years and shall also be liable to fine” to “simple imprisonment up to two years and fine”.
• (b) In section 474, punishment for the offences mentioned under section 474 is proposed to be changed from its current “rigorous imprisonment for a term which may

extend to two years and shall also be liable to fine” to “simple imprisonment up to 6

months and/or fine”.

• (c) In section 475, punishment for the offences mentioned under section 475 is proposed to be changed from its current “rigorous imprisonment for a term which may extend to two years and shall also be liable to fine” to “simple imprisonment up to two years and fine”.

���Decriminalisation of IT provision���

• (d) In case of offences related to tax deducted at source (TDS):�(i) If a person fails to pay the tax deducted at source or ensures the payment of such tax, in case of winnings from Lottery or crossword puzzle etc. as required under section 476(1)(b)(i) and if a person fails to pay and ensure payment of tax deducted at source in case of benefits or perquisite under section 476(1)(b)(ii) then the punishment for these offences is rigorous imprisonment for a term which shall not be less than three months but which may extend seven years, and with fine. These offences are proposed to be fully decriminalized.

�����Rationalization of Penalties into Fee����

• Section 446 of the Act, provides penalty for failure to get accounts audited.
• It further provides that, if any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or to obtain a report of such audit as required under the aforesaid provision, the Assessing officer may direct that such person shall pay, by way of penalty, lesser of –
• i. 0.5% of the total sales, turnover or gross receipts, in the business, or the gross receipts in the profession, for such tax year or years, or
• ii. ₹ 150000.

�����Rationalisation of Penalties into Fee����

• Further, section 447 provides penalty for failure to furnish report under section 172 of the Act, where section 172 relates to report from an accountant to be furnished by persons entering into international transaction or specified domestic transactions. Presently, a penalty of ₹ 1,00,000/- is levied for such failure.
• Further, section 454 provides for penalty for failure to furnish statement of financial transactions or reportable account.
• Presently, a penalty of ₹ 500 is levied for everyday during which such failure continues.
• Further, 454(2) provides that if person referred to in sub-section (1), fails to furnish the statement within the period specified in the notice issued under section 508(7), then in that case a penalty of ₹ 1000 is levied for everyday during which the failure continues.
• In this regard, it is considered that penalties for technical delays should be converted into mandatory fee as fee reduces litigation for technical faults.

������In view of the above it is proposed to convert following penalties into fee����

• Penalty under section 446 for failure to get accounts audited is converted to a fee under proposed section of 428(c).
• Accordingly, Graded fee of Rs. 75,000 and 1,50,000 is proposed depending upon the period of delay.
• It is pertinent to mention that this penalty under section 446 has been omitted but the same section has been replaced by the penalty for failure to furnish information or for furnishing inaccurate information on transactions of crypto asset.
• Penalty under section 447 for failure to furnish report under section 172 is converted to a fee under section 428(4). Graded fee of Rs. 50,000 and 1,00,000 is provided depending upon the period of delay.
• Penalty under section 454(1) for failure to furnish statement of financial transaction or reportable account is converted to a fee under section 427(3).

���Penalty provision for non-furnishing of statement or furnishing inaccurate information�in a statement on transaction of crypto-assets���

• Section 509 of the Act provide for obligation to furnish information on transaction of crypto-asset.
• Penalty of Rs. 200 per day for non furnishing of statement and Rs. 50,000 for furnishing inaccurate particulars and failure to correct such inaccuracy is proposed to be levied.
• Penalty under section 446 for failure to get accounts audited is converted to a fee under proposed section of 428(c). �Accordingly, Graded fee of Rs. 75,000 and 1,50,000 is proposed depending upon the period of delay. It is pertinent to mention that this penalty under section 446 has been omitted but the same section has been replaced by the penalty for failure to furnish information or for furnishing inaccurate information on transactions of crypto asset.

���In view of the above it is proposed to convert following penalties into fee:���

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• Penalty under section 447 for failure to furnish report under section 172 is

converted to a fee under section 428(4). Graded fee of Rs. 50,000 and 1,00,000 is

provided depending upon the period of delay.

• Penalty under section 454(1) for failure to furnish statement of financial transaction or reportable account is converted to a fee under section 427(3).
• Further, an upper limit of Rs. 1,00,000/- is also proposed to be made in existing penalty under section 454(2) of the Act.
• WEF: 26-27

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�Increase in maximum amount of penalty in section 466 of the Act:�

• Section 254 of the Income-tax Act, 2025 (hereinafter referred as ‘the Act’) provides the power to the income-tax authorities to collect information from the premises where business or profession is carried out, by directing the proprietor or employee or any other person, who may at that time and place, be attending in any manner to, or helping in, or carrying on of such business or profession, to furnish certain information as authorized.
• Further, section 466 of the Act provides for a penalty if any person fails to comply with the provision of section 254, i.e. power to collect information, and does not furnish the requisite information to the authorized income-tax authorities.
• The section further gives power to Joint Commissioner, Deputy Director or Assistant Director or the Assessing officer to impose maximum penalty amounting to Rs. 1000/- is increased to Rs.25000

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Penalty provision for non-furnishing of statement or furnishing inaccurate information in a statement on transaction of crypto-assets

• The penalty is converted into graded fees

Providing definition of “commodity derivative”

• The same is to be borrowed from IT Act, 1961

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No tax to de deducted at source in respect of interest income credited or paid to any cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank) �Section 393(4)

Allowing deduction to non-life insurance business when TDS, not deducted earlier is paid later

• Part B of Schedule XIV of the Act provides for computation of profits and gains from insurance business other than life insurance. Paragraph 4(1)(a) of Schedule XIV provides that while computing the profits and gains of such business, any expenditure, allowance, etc. which has been debited to profit and loss account but which is inadmissible under sections 28 to 54 shall be added back to the profits and gains.

Referencing the time limit to complete block assessment to the initiation of search or requisition

Providing definition of “commodity derivative”

Inclusion of Cooperatives registered under Multi-State Cooperative Societies Act, 2002 in the definition of co-operative society

• Activity scope is expanded

Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• The Union Budget 2026 marks a significant policy intervention in the domain of international taxation and compliance with the introduction of the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (the Scheme). The Scheme provides a limited-period opportunity to specified taxpayers to voluntarily disclose certain undisclosed foreign assets or foreign income and obtain immunity from further tax consequences, penalties, and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”).
• The Scheme reflects a calibrated approach by the legislature balancing strict enforcement against willful tax evasion with relief for small taxpayers, returning non-residents, and cases involving inadvertent or technical reporting failures.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Legislative Framework and Commencement
• The Scheme is contained in sections 114 to 128 of the Finance Act, 2026. It shall come into force from such date as may be notified by the Central Government and shall remain open until a “last date” notified in the Official Gazette. The Central Board of Direct Taxes (CBDT) has been vested with wide powers to issue directions, prescribe procedures, relax provisions in public interest, and frame rules for effective implementation of the Scheme.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Applicability:
• The Scheme applies to 
• A person who are resident in India within the meaning of section 6 of the Income-tax Act, 1961 
• A person who are currently non-resident or not ordinarily resident, but were resident in India either in the year to which the undisclosed foreign income relates or in the year in which the foreign asset was acquired.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Exclusion from scheme
• The Scheme does not apply to income or assets representing proceeds of crime where proceedings have been initiated or are pending under the Prevention of Money-laundering Act, 2002. It is also inapplicable to cases where assessment proceedings under the Black Money Act have already been completed.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Eligible Assets and Income 
• The Scheme permits declaration of undisclosed assets located outside India, including financial interests in foreign entities held directly or beneficially, where the source of investment is unexplained or considered unsatisfactory. It also covers undisclosed foreign income, being income from sources located outside India that was chargeable to tax in India but was not offered to tax under the Income-tax Act. Declarations may be made for any previous year, including years prior to the previous year ending 31 March 2026.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Conditions for Making a Declaration
• A declaration may be filed where the assessee has 
• failed to furnish a return of income, or 
• has furnished a return but failed to disclose the relevant foreign asset or income, or
• where such income or asset has escaped assessment under section 147 of the Income-tax Act, 1961.
• The declaration should be filed electronically in the prescribed form. Any false statement or violation of the conditions of the Scheme renders the declaration invalid.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Categorisation and Amount Payable
• The Scheme adopts a two-tier structure that distinguishes between substantive tax evasion and mere reporting or disclosure lapses.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• * Apparently, it seems that the flat fee of INR 1 lakh is payable once per declarant (per declaration), and not year-wise, provided all eligible reporting defaults are covered in one declaration. However, if multiple separate declarations are filed (instead of one consolidated declaration), the department may levy the fee per declaration. Final clarity may also emerge through CBDT Rules / FAQs / Forms, once notified.

��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Procedure and Payment 
• After electronic verification of the declaration, the prescribed income-tax authority shall issue an order electronically determining the amount payable. The declarant is required to make payment within two months from the end of the month in which the order is received.
• An additional period of up to two months is available for payment along with simple interest at the rate of 1% per month. Upon payment and submission of payment intimation, a certificate confirming compliance under the Scheme is issued electronically. Such certificate is conclusive as to the matters stated therein.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Tax Consequences
• Income or assets validly declared under the Scheme shall not be included in the total income of the declarant under either the Income-tax Act, 1961 or the Black Money Act, 2015.
• Amounts paid under the Scheme are non-refundable. Further, the declarant is not entitled to seek rectification, revision, set-off, or appellate relief in respect of the income or asset declared, ensuring finality of proceedings.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Immunity from Penalty and Prosecution
• A declarant who makes a valid declaration and pays the prescribed amount is granted immunity from any further tax, penalty, or prosecution under the Black Money Act in respect of the income or asset so declared, for the previous year ending 31 March 2026 and all earlier years.
• Effect on Pending Assessments
• Where assessment proceedings under the Income-tax Act or the Black Money Act are pending in respect of the income or asset declared under the Scheme, the Assessing Officer is required to take such declaration into account while finalising the assessment.

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��Foreign Assets of Small Taxpayers Disclosure Scheme, 2026�

• Conclusion:
• The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 represents a pragmatic compliance initiative that seeks to balance enforcement with fairness. By clearly distinguishing deliberate evasion from genuine disclosure lapses, the Scheme provides a valuable opportunity for small taxpayers and returning NRIs to regularise past non-compliances with certainty and legal finality.
• The effectiveness of the Scheme will depend upon clarity in subordinate legislation, valuation rules, and timely implementation. Nevertheless, the Scheme marks a constructive step towards enhancing voluntary compliance in the international tax framework.

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�CA NITIN PATHAK

�Past PRESIDENT ISACA CHAPTER AHMEDABAD

BLOG: canitinmpathak.blogspot.com

E-mail: nitinmpathak@gmail.com

You Tube : CA Nitin Pathak

M. 98258 04094