'Rs 10 lakh penalty': 7 foreign income disclosure mistakes to avoid in your ITR 2026

India's Black Money Act is one of the most unforgiving tax laws on the books. A resident Indian who holds a foreign bank account, owns overseas property, or has shares in a foreign company — and fails to disclose it in their income tax return — faces a flat penalty of Rs 10 lakh per assessment year. Not a percentage of the asset value. Not a sliding scale. A flat Rs 10 lakh, applied every year the omission continues. With Budget 2026 having introduced the Foreign Assets of Small Taxpayers Disclosure Scheme (FAST-DS 2026) as a limited amnesty window, and the July 31 ITR deadline approaching, here are the seven disclosure mistakes that cost taxpayers the most.

Mistake 1: Thinking Small Assets Do Not Need To Be Reported

Many taxpayers assume that foreign assets below a certain value are exempt from disclosure. This is wrong. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, the Rs 10 lakh flat penalty applies regardless of the size of the foreign asset — with one exception: from October 1, 2024, the penalty under Sections 42 and 43 does not apply if the aggregate value of all non-immovable foreign assets is below Rs 20 lakh. Foreign immovable property, however, carries no such safe harbour — it must be declared regardless of value. A foreign bank account with Rs 50,000 in it still needs to appear in Schedule FA of your ITR.

Mistake 2: Not Reporting Foreign Assets Inherited Or Received As Gifts

Taxpayers who inherit foreign assets — a bank account from a parent who lived abroad, shares in a family-held overseas company, or foreign property — often assume they do not need to declare assets they did not actively acquire. The obligation to disclose applies to all foreign assets held by a resident Indian, regardless of how they were acquired. Inherited or gifted foreign assets must appear in Schedule FA from the year the taxpayer becomes the legal owner.

Mistake 3: Returning NRIs Forgetting Overseas Assets

Non-resident Indians who return to India and become resident taxpayers must begin disclosing their overseas assets from the year they become residents. Many returning NRIs continue to hold foreign bank accounts, retirement savings plans (such as 401k accounts in the US), or overseas property — and do not realise that these must now be disclosed annually in Schedule FA. A returning NRI who held a foreign account for years without disclosing it after becoming a resident faces compounding penalties for each year of non-disclosure.

Mistake 4: Confusing Schedule FA With Schedule FSI

Schedule FA and Schedule FSI serve different purposes and both must be filled where applicable. Schedule FA covers assets held outside India — bank accounts, equity, immovable property, trusts, and any other financial interest abroad. Schedule FSI covers income earned from foreign sources — salary received from a foreign employer, dividends from overseas shares, interest from a foreign bank account, or rental income from overseas property. Taxpayers often fill one and skip the other. Both are mandatory for resident taxpayers with overseas exposure, and the information in both schedules must be consistent.

Mistake 5: Assuming Tax Disclosure Cures FEMA Violations

Budget 2026's FAST-DS 2026 scheme allows individuals to regularise undisclosed foreign income and assets by paying applicable tax and a penalty, obtaining immunity under income tax laws. What it does not do is cure separate violations under the Foreign Exchange Management Act. Common FEMA contraventions include retaining foreign bank balances beyond the permitted repatriation period, acquiring overseas property through impermissible funding sources, or failing to file required reports such as Form FC with the Reserve Bank of India. Paying the income tax penalty under FAST-DS does not automatically resolve a FEMA liability — taxpayers need separate legal advice on FEMA compliance.

Mistake 6: Not Reporting Foreign Income That Was Not Remitted To India

Some taxpayers believe that foreign income needs to be declared in India only when it is brought into the country. This is incorrect for resident and ordinarily resident taxpayers. Under Indian tax law, residents are taxable on their global income — including income that arose abroad and was never remitted to India. Foreign salary credited to an overseas account, interest earned in a foreign bank that stayed abroad, or dividends from foreign shares that were reinvested overseas — all of these must be declared in Schedule FSI and are potentially taxable in India.

Mistake 7: Filing The Wrong Return Form And Skipping Foreign Schedules

Schedule FA and Schedule FSI exist only in ITR-2 and ITR-3. Taxpayers with foreign assets who file ITR-1 — perhaps because their salaried income appears to fit that form — have no way to complete the mandatory foreign asset disclosure. Filing ITR-1 when you hold foreign assets is treated as non-disclosure. Resident taxpayers with any overseas bank account, foreign shares, or overseas property must file at minimum ITR-2, which contains both Schedule FA and Schedule FSI. Getting the form wrong is not a technical defence — the penalty for non-disclosure applies regardless of which form was filed.