Income Tax Department Launches Compliance Drive on Undisclosed Foreign Assets & Income: What Taxpayers Must Know (AY 2025-26)
The Income Tax Department of India has launched a major compliance campaign targeting taxpayers who may have failed to disclose foreign assets and foreign-sourced income in their Income Tax Returns (ITRs) for Assessment Year 2025–26.
Immediate Action Required: Starting 28 November 2025, nearly 25,000 high-risk taxpayers identified through international data exchange systems have begun receiving SMS and email alerts, urging them to revise their ITRs by 31 December 2025 to avoid heavy penalties.
In this article, we break down the campaign in detail, its implications, the penalties involved, and what taxpayers must do immediately to stay compliant.
1. Background: Why This Compliance Drive Now?
India is part of several international agreements that enable countries to automatically exchange financial information of residents holding assets abroad. These global collaborations ensure tax transparency and prevent tax evasion.
The Income Tax Department uses this information to match:
- Foreign bank accounts
- Investment holdings
- Real estate abroad
- Foreign income streams
The Risk: When mismatches or non-disclosures arise between these data points and disclosures made in taxpayer ITRs, the taxpayer is flagged as “high-risk” for non-compliance.
2. Data Sources: CRS, FATCA & AEOI Frameworks
The current notices are driven by data received from:
- ✔ Common Reporting Standard (CRS): Over 100+ jurisdictions share financial information about account holders.
- ✔ FATCA (Foreign Account Tax Compliance Act — USA): Provides details of financial assets held by Indian citizens/NRIs in the U.S.
- ✔ AEOI (Automatic Exchange of Information): An umbrella framework enabling secure cross-border exchange of financial data.
Using advanced data analytics, the department detected individuals who held foreign assets but failed to report them in Schedule FA (Foreign Assets) or Schedule FSI (Foreign Source Income).
3. The NUDGE 2.0 Compliance Campaign
This initiative is part of the NUDGE 2.0 strategy—an improved outreach model designed to encourage voluntary compliance without resorting to litigation.
Phase 1 (Launched 28 November 2025)
- 25,000 high-risk taxpayers contacted
- Alerts sent via email + SMS
Phase 2 (From Mid-December 2025)
- A much larger taxpayer base will be covered.
This is the last date to file a Revised Return. Taxpayers who correct their foreign asset reporting before this date can avoid prosecution and heavy penalties.
4. What Triggered the Notice? Key Non-Compliance Indicators
If you received an alert, it may be due to:
- Not disclosing foreign bank accounts
- Missing or incomplete Schedule FA
- Foreign investments not declared
- Rental income, capital gains, dividends from foreign sources not shown in Schedule FSI
- Large foreign transactions detected by CRS/FATCA
- Inconsistencies between financial institution reports and your ITR
5. Penalties for Non-Compliance: Black Money Act, 2015
Failure to properly report foreign assets is treated as a serious offence under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. These penalties apply even if the foreign asset does not generate income.
| Offence | Penalty |
|---|---|
| Failure to disclose foreign assets | ₹10 lakh penalty |
| Undisclosed foreign income | 30% tax on undisclosed amount |
| Additional penalty | Up to 300% of tax owed |
| Possible prosecution | Up to 7 years imprisonment |
6. Last Year’s Campaign — Results
In the previous year, the Income Tax Department ran a similar campaign. Its impact:
- 24,678 taxpayers filed revised returns
- Foreign assets worth ₹29,208 crore disclosed
- Foreign income of ₹1,089.88 crore declared
This success encouraged a larger and more focused campaign for AY 2025–26.
7. What Should You Do If You Receive an Alert?
Below is the recommended compliance path from ITP:
- Step 1 — Review the SMS/Email: The communication contains your risk flag reference and ITR details.
- Step 2 — Retrieve Financial Data: Collect Foreign bank statements, Investment statements, Tax residency certificates, and details of foreign income (dividends, interest, salary, rent, capital gains).
- Step 3 — Update Schedule FA & FSI: Ensure all assets and incomes are properly disclosed.
- Step 4 — File a Revised Return Before 31 December 2025: This eliminates penalties under the Black Money Act.
- Step 5 — Take Professional Help: Foreign asset reporting requires understanding valuation, conversion into INR, and strict reporting formats.
8. How Indian Tax Planning (ITP) Can Help
At ITP, we specialize in foreign asset reporting and compliance. We assist taxpayers in:
- Identifying disclosures required under Schedule FA/FSI
- Filing revised returns correctly
- Responding to compliance notices
- Understanding CRS/FATCA implications
- Avoiding penalties under the Black Money Act
- Maintaining documentation for future scrutiny
Contact Us for Expert Guidance
The Income Tax Department’s latest crackdown is a clear signal—non-disclosure of foreign assets will not be overlooked. Reach out to us to ensure full compliance.
