Foreign asset amnesty meets a falling rupee

Mumbai: The weakening rupee, valuation rules, and amounts exceeding a modest threshold are dissuading many from confessing undisclosed foreign income and assets during the limited amnesty period. Starting on August 16, the voluntary disclosure window permits individuals to rectify overseas stocks, properties, ESOPs, dividends, interest, etc., up to ₹1 crore by paying 60% tax and penalty.

Also reported: Government launches tax disclosure window for foreign assets and income. Valuation references March 31, 2026 for currency conversion, but income rules lack a specific conversion date. Given the rupee's 14-33% decline over the past three to seven years, many could exceed ₹1 crore if they use March 31 as the conversion date.

Opinions vary regarding the scheme's effectiveness. Former ICAI president Ved Jain asserts that the scheme adopts March 31, 2026 as the valuation date for income as well, providing clarity on eligibility and tax calculations. However, chartered accountant Ashish Karundia clarifies that undisclosed foreign income refers to earnings from sources outside India, chargeable to tax in India but not declared under the 1961 I-T law.

To determine applicable tax rates, one must refer to the I-T Rules, 1962, particularly Rule 115, which outlines currency conversion. Taxpayers with undisclosed income surpassing ₹1 crore (e.g., ₹2 crore) are contemplating strategies like filing an updated return followed by the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS).

Since the updated return's tax burden may be higher, taxpayers might save ₹30-40 lakh. The ₹1 crore cap encourages splitting undisclosed income between an updated return and FAST-DS (offering excess over ₹1 crore through the updated return while claiming FAST-DS benefits for the remainder). However, Bhuta warns that this approach could render the FAST-DS declaration invalid due to misrepresentation or suppressed facts, leaving taxpayers without recourse in future.

The scheme aims to assist assessees in rectifying genuine errors, allowing declaration of up to ₹5 crore foreign assets acquired with tax-paid money by residents using the liberalized remittance scheme or returning NRIs who neglected to declare foreign accounts. However, valuation rules can yield unexpected outcomes. For certain foreign assets, value is determined by the higher of acquisition cost or market value.

If a ₹5.25 crore asset is now worth ₹3 crore, its value under the scheme remains ₹5.25 crore, potentially excluding the taxpayer from the scheme. Deemed fair market value applies when the prescribed valuation is absent. For instance, a property bought for ₹4 crore now valued at ₹3.5 crore has an indexed cost of ₹5.2 crore, pushing the taxpayer beyond the ₹5 crore limit.

In such borderline cases, valuation can significantly impact eligibility. Chokshi calls for clarification on falling-value assets and borderline scenarios to ensure clarity.