• A salaried individual had invested Rs 90,000 in stocks listed in the US, now trading at a loss. The money transfer for the overseas stocks were part of the annual information statement (AIS) of the person’s income tax return but he did not disclose it separately in the Schedule FA (foreign assets) of his income tax return. Under the new disclosure scheme, he will have to pay Rs 1 lakh upfront for disclosing the loss-making investment.
• An employee with a foreign company operating in India had the vesting details of his employee stock ownership plan (ESOP) as part of his salary, but had not declared it separately in the foreign assets schedule of the income tax return. He has to now pay Rs 1 lakh just as disclosure charges under the new scheme.

When the government proposed the new tax disclosure scheme in this year’s Budget, the intent was well specified — to address “practical issues of small taxpayers like students, young professionals, tech employees, relocated NRIs” among others. However, the tax disclosure window, Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST-DS), which was launched on August 16, has now resulted in doubts and questions as individuals face high fees and penalties to participate in the scheme.

The problem is more acute for salaried individuals who have received restricted stock units (RSUs) or ESOPs, and not reported them before. Even for cases where there has not been any actual gain, the employees will now be required to pay Rs 1 lakh for disclosing under the new scheme, which is being seen as too steep an amount as penalty by many. “The ESOPs are part of my salary, just that I did not disclose it separately earlier. Asking for Rs 1 lakh as an amount for only disclosure is too high,” the employee with the foreign company cited above said.

Here’s what to know.

Change in status

Experts said that the change in status from a non-resident to an Indian resident needs to be taken note of by the authorities under such disclosure schemes, especially for cases where salaried employees took ESOPs from their global companies and had to give details for that. “Many of them were non-resident Indians (NRIs) then and were later deputed to India and became Indian residents. They did not disclose the old details earlier and are disclosing it now. After disclosure, you get the notice saying how did you acquire it? The NRIs have turned into residents, that has to be taken note of,” a top executive with an asset management company told .

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ESOPs are an important salary component for salaried employees in many sectors, especially those working in tech sector and startups and foreign companies. The scale of ESOPs in India’s net outflows can be seen from the sharp rise of the flows under the category of “financial derivatives (other than reserves) and employee stock options” of the Balance of Payments (BoP) in recent years. In 2025-26, this figure stood at just under $24 billion, up 8% from a net outflow of around $22 billion in 2024-25. However, 2024-25 was the year which saw a big jump in the number, almost tripling from nearly $8 billion in 2023-24. The BoP data by the Reserve Bank of India does not give a separate breakup of the flows for ESOPs and financial derivatives.

Many employees are considering filing an updated return for such anomalies rather than disclosing under the scheme, with greater scrutiny going ahead being one of the key concerns especially in cases where value of assets is less.

When asked, tax officials pointed out that the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act doesn’t recognise updated returns for income that was never before taxed or disclosed. “So even if the updated return is filed, he’ll still be liable to tax and penalty under the Black Money Act. That’s why it is better to disclose under FAST-DS. There is no intention of more scrutiny for such declarations,” a senior income tax official told .

‘Disproportionate penalty’

The scheme applies to two broad categories: i) undisclosed and never-before-taxed foreign income or asset located outside India up to Rs 1 crore; ii) asset up to Rs 5 crore located outside India, which was already offered to tax or was acquired when the assessee was a non-resident, but not declared in the relevant schedule of the income tax return. Under the first category, an assessee needs to pay 30% of fair market value (FMV) of assets or 30% of undisclosed income as tax and 30% as additional income tax in lieu of penalty, while for the second category, the disclosure fee is Rs 1 lakh.

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The question is also of materiality — the maximum amount of error allowed in the financial statements before they are considered wrong. Experts pointed out that if the amounts are not significant enough, the penalty of Rs 1 lakh looks disproportionate. For instance, for the salaried employee cited above who invested less than Rs 1 lakh in US-listed stocks and did not disclose the same, the flat Rs 1 lakh disclosure fee erases the entire investment, making the fee disproportionate.

“Sometimes you have sold shares but some fraction of shares still remain and you forgot to disclose those fraction of shares. The authorities then catch hold of you to ask: why did you not disclose? They should see the materiality of it. The person has disclosed $50 of shares, and some tiny part has not been disclosed. The materiality has to be seen for it,” the executive with the asset management company cited above said.

“If they impose a tax of 30% plus 30% penalty, then who will pay 60% for this? Isn’t it too high? Second, you are asking for Rs 1 lakh for disclosure. Remember the most honest taxpayer of India is the salaried employee, and it is not by choice, but by default. What will a Rs 1 lakh levy for the honest salaried employee result in? It’s better to go after big defaulters and evaders,” he said.

The income tax officials, however, said merely having offered ESOPs/RSUs as part of salary taxation does not by itself constitute disclosure of the foreign asset in the prescribed Schedule FA. The applicability of FAST-DS is not determined by whether the undisclosed foreign asset is presently in profit or loss; the scheme addresses non-disclosure of the foreign asset itself, rather than whether any income or gain has arisen from that asset, a tax official said.

Fixed date of valuation

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The fixing of the valuation date as March 31, 2026, irrespective of the movement in exchange rate or the value of the assets is also one of the issues being flagged by experts for disclosure under the scheme. The FMV of assets proposed to be declared must be computed as on this date and the FMV will be the higher amount between the cost of acquisition, and the price the asset would ordinarily fetch if sold in the open market on the valuation date, ideally supported by a report from a valuer recognised by the government (or its agency) of the country where the asset is located. Where such market valuation is not carried out, the indexed cost of acquisition will be taken as the FMV. 

Income tax officials maintain that taxation of income and reporting of foreign assets are separate compliance requirements. “The scheme covers foreign assets up to an aggregate value of Rs 5 crore, while prescribing a uniform fee of Rs 1 lakh. The fee is therefore a fixed regularisation fee and not a penalty based on the value of the asset or the tax payable on it. Given the potential asset value covered by the scheme, the Rs 1 lakh amount is intended as a simple and uniform cost for regularising past non-disclosure, irrespective of whether the asset has appreciated or depreciated. The fee of Rs 1 lakh should also be seen in the context of the Rs 10 lakh penalty that non-disclosure would have warranted otherwise, but for this scheme,” the tax official said.

One of the solutions could be to have a discrepancy threshold, experts said. “Let’s say if you have an asset of $100,000 held overseas, then don’t disclose it. And up to $100,000 discrepancy, the Income Tax Department should not issue a notice. Then the disclosures will happen on an almost voluntary basis. But the records of such overseas assets will be there with the Department,” the executive said. Also, an updated database of NRIs will help manage the issue of foreign assets in a better manner, experts said. “There have been cases where people despite being permanent residents of other countries such as Singapore for decades still get tax notices for the bank accounts opened in Singapore during their non-resident status. The Tax Department should flag such people as NRIs in their database,” he said.