Is updated ITR more economical than FAST-DS for past foreign income

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The new Foreign Assets of Small Taxpayers–Disclosure Scheme (FAST-DS), 2026, has opened a one-time window for taxpayers to clean up past omissions involving overseas income and assets. Depending on whether you have undisclosed foreign income or assets or both, you can voluntarily declare these by paying a penalty. Voluntarily opting for FAST-DS can secure immunity from tax, penalties and prosecution under the Black Money Act (BMA).

However, there is a second option for taxpayers: an updated return, or ITR-U. In some cases involving undisclosed foreign income, filing an ITR-U could result in a considerably smaller bill.

An updated income-tax return gives taxpayers a second chance to report income omitted from an earlier tax return. It can also be filed if no ITR was filed for that year.

The taxpayer first calculates the normal tax due on the additional income and the interest payable for the delay, and then pays an additional tax depending on how late the ITR-U is being filed. Interest is calculated at 1% per month from the first month of the assessment year to which the income relates.

The ITR-U may be filed up to 48 months after the end of the relevant assessment year. So this year, ITRs for AY 22-23 (FY22), AY 23-24, AY 24-25, and AY 25-26 can be updated or filed.

The longer a taxpayer waits, the more expensive this route becomes. If an ITR-U is filed within 12 months from the end of the relevant assessment year, the additional tax is 25% of the tax and interest due. This rises to 50% if it is filed after 12 months but within 24 months, 60% after 24 months but within 36 months and 70% after 36 months but within 48 months. So for ITR relating to AY 22-23, 70% of the due tax plus interest is to be paid as a penalty.

While penalties under ITR-U are also steep, in some cases of undisclosed foreign income, disclosure under FAST-DS may be less expensive. This is because FAST-DS imposes a penalty of 60% of income plus the value of undisclosed assets, along with the due tax.

Take this example. Say a salaried individual had earned a dividend worth ₹ 10 lakh on his US shares under the reinvestment option in FY24 (AY24-25). He failed to declare them in Schedule FA as the money got reinvested, and he didn’t notice the credit. He can opt to declare this under FAST-DS by paying 60% of ₹ 10 lakh, i.e., ₹ 6 lakh. Or he can file ITR-U, where the total outgo is much lower.

Harshal Bhuta, partner at P. R. Bhuta & Co., CAs, said that under ITR-U, foreign tax credit (FTC) is available if the taxpayer has already paid tax in a foreign country. FTC lets you adjust foreign taxes against your Indian tax liability directly while filing your ITR. In the example above, a 25% tax would have been withheld in the US. So, the taxpayer has to essentially pay 5% tax on ₹ 10 lakh, which is ₹ 50,000. After adding interest and 50% penalty, the total tax liability comes to about ₹ 1 lakh.

Take another example: the taxpayer sold his US shares and didn’t pay capital gains tax on ₹ 20 lakh in gains in India.