Taxpayers Face Hurdles in Foreign Asset Disclosure as Rupee Depreciation Complicates Compliance

Taxpayers holding undisclosed foreign assets are facing a complex challenge as they navigate the newly launched Foreign Assets of Small Taxpayers Disclosure Scheme (FAST-DS), 2026. Experts warn that the ongoing depreciation of the Indian rupee against the US dollar may inadvertently push asset valuations beyond the scheme’s eligibility thresholds, potentially disqualifying individuals from the benefit of a lower tax-and-penalty structure.

The Income Tax Department launched the one-time voluntary disclosure window on August 16, 2026. The scheme is designed to allow residents to regularize previously unreported overseas assets—including shares, properties, ESOPs, dividends, and interest—by paying a 60% levy (comprised of 30% tax and an equal amount in penalties). However, the weaker rupee has become a major point of concern for those whose holdings are denominated in foreign currency.

The Valuation Dilemma

The scheme mandates March 31, 2026, as the official valuation date for assets. Given that the rupee has depreciated between 14% and 33% over the last several years, converting foreign assets to Indian rupees using current exchange rates often results in a significantly higher valuation than the original investment. This “inflation” of value may push an asset across the Rs 1 crore threshold, stripping taxpayers of the opportunity to utilize the simplified disclosure route.

Legal and tax experts remain divided on the interpretation of the rules. Ved Jain, former president of the ICAI, argues that the scheme provides a clear framework by treating the March 2026 date as the benchmark for both assets and income. Conversely, chartered accountant Ashish Karundia suggests that for foreign income, the conversion should be based on the exchange rate prevalent during the year the income was actually earned, noting that applying current rates could unfairly penalize taxpayers.

Strategic Risks and Compliance

As the December 31, 2026, deadline approaches, some taxpayers are exploring “hybrid” strategies. According to chartered accountant Harshal Bhuta, some individuals are attempting to split their declarations by utilizing both an ‘updated return’ and the FAST-DS to stay under the Rs 1 crore limit. While this could theoretically save a taxpayer Rs 30-40 lakh in taxes, Bhuta warns that such maneuvers carry high risks. Any misrepresentation or suppression of facts during the FAST-DS filing could render the entire declaration void, leaving the taxpayer exposed to full penalty and prosecution.

Eligibility Pitfalls

The scheme also contains strict valuation rules that can create “borderline” traps. For many asset classes, the law requires the taxpayer to consider the higher of the acquisition cost or the current market value.

“In borderline cases, valuation is not merely a compliance exercise. It could decide eligibility itself,” says advocate Priyanshi Chokshi. For instance, even if a property’s market value has dropped, the indexed cost of acquisition might push the total value beyond the Rs 5 crore maximum limit for the scheme, leaving the taxpayer ineligible despite having acquired the assets with tax-paid money.

Key Details for Taxpayers

• Scheme Period: August 16, 2026, to December 31, 2026.
• Valuation Date: March 31, 2026.
• Total Tax Outgo: 60% (30% tax + 30% penalty).
• Processing: The entire disclosure process is facilitated online by the Income-tax Department’s systems.

Taxpayers are urged to exercise caution and seek professional guidance before filing, as the nuances of currency conversion and valuation remain a critical factor in determining whether they can successfully leverage this one-time window for compliance.