Simplified tax procedure to foreign assets disclosure: 2 key proposals for small taxpayers in Budget 2026

Finance Minister Nirmala Sitharaman introduced many reforms to simplify tax procedures for small taxpayers in the Union Budget 2026. 

On Sunday, February 1, FM Nirmala Sitharaman presented the Budget 2026 in Parliament, marking her ninth consecutive Union Budget. While there were no changes in tax slabs and standard deduction, the FM made two important announcements for small taxpayers. 

Simplified tax procedure

In the Finance Bill 2026, the FM proposed that the applications for the issuance of certificates for a lower rate or NIL deduction of tax may be submitted electronically to the Income Tax authority. 

“I propose a scheme for small taxpayers wherein a rule-based automated process will enable obtaining a lower or NIL deduction certificate instead of filing an application with the assessing officer,” FM Sitharaman said in her Budget speech. 

Currently, the applications for these certificates are submitted to the Assessing Officer (AO). “As per the present provisions, the payee has to make an application before the Assessing Officer. Subsequent to the application, if the Assessing Officer is satisfied that the total income of the recipient justifies deduction at any lower rate or no deduction, he/she issues a certificate.”

“However, the process for issuance of such certificates is uniform both for cases involving small amounts as well as large amounts,” the tax department said in Budget FAQs 2026. 

Now, small taxpayers’ applications may be made electronically to the prescribed IT authority. “For small taxpayers, it is proposed that the application for issuance of certificates for a lower rate or nil deduction of tax may be made electronically to the prescribed income-tax authority,” the FAQs said. 

The income tax authority will examine the application electronically and issue the certificate if the conditions are fulfilled. This will make the process automated.

“The prescribed income-tax authority shall examine the application electronically and 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,” the tax department said. 

Further, the taxpayers cannot file the application to both the AO and the authority. "The application can be filed either before the Assessing Officer or to the prescribed income-tax authority,” it added. 

These amendments will come into effect from April 1, 2026. 

Foreign asset disclosure scheme

The FM has introduced a 6-month foreign asset disclosure scheme for students, young professionals, tech employees, relocated NRIs and others to allow them to disclose income or assets below certain limits.

“To address practical issues of small taxpayers like students, young professionals, tech employees, relocated NRIs, and such others, I propose to introduce a one-time 6-month foreign asset disclosure scheme for these taxpayers to disclose income or assets below a certain size,” the FM said.

The scheme would be applicable to taxpayers who did not disclose their overseas income or assets and those who disclosed their overseas income and/or paid due tax, but could not declare the asset acquired, she added. 

The limit for taxpayers who did not disclose overseas income or assets is up to ₹1 crore. Importantly, they need to pay 30% of the fair market value of the undisclosed asset/income as tax, and 30% as additional income tax as a penalty to get immunity from prosecution.

“The declarant is required to pay tax at the rate of 30% of the value of the undisclosed foreign asset as on 31 March 2026 or of the undisclosed foreign income, as the case may be, together with an additional amount equal to 100% of such tax. The total amount payable will be 60% of the value of the asset or foreign income, as the case may be,” the tax department said.

Meanwhile, for the taxpayers who disclosed the income and paid tax, but didn’t declare the asset acquired, the limit proposed is up to ₹5 crore. Additionally, these taxpayers will be immune from prosecution and penalty after making a fee payment of ₹1 lakh. 

“If the asset is the same, then only a one-time fee would be chargeable and would be applicable for the first year of non-disclosure. Thereafter, it would be deemed that the asset remains disclosed. However, if there are assets that were acquired in multiple years, then fees would be chargeable for the corresponding first years when the asset was undisclosed,” the tax department noted. 

This provides a one-time opportunity to small taxpayers to disclose specified foreign income and assets to avoid prosecution under the Black Money and Imposition Tax Act. 

“The Scheme provides a one-time opportunity to eligible taxpayers to disclose specified foreign income and assets either not taxed or not reported in the return of income, on payment of tax or fee, with immunity from further tax, penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,” the tax department said. 

After the taxpayer makes the declaration, the Income Tax authority will communicate the amount payable by the end of the month in which the declaration is furnished, and the amount is required to be paid within two months from the end of the month in which the order is received. After this, a further extension of two months is permitted, but no other extension is allowed. Additionally, if the payment is made during the extended two months, a 1% interest per month would be charged on the unpaid amount. 

“Yes. A declarant who makes a valid declaration and pays the prescribed amount shall be granted immunity from levy of tax, penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, in respect of the income or asset so declared,” the tax department said. 

Note that the scheme is not applicable for cases under the Prevention of Money Laundering Act, 2002 or for cases where assessment proceedings under the Black Money Act have already been completed. 

If assessment proceedings have started under the Income Tax Act, 2025, and are pending for such a case, the Assessing Officer shall consider the declaration while finalising the proceedings, the IT department said. 

The implementation date and last date of the scheme are yet to be notified.