In short
The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 closes on 31 December 2026. Where there is no satisfactory explanation of the source of investment, or foreign income was never offered to tax, and the two together do not exceed Rs 1 crore, it costs sixty per cent of that aggregate. Where the asset was bought out of income already offered to tax, or out of foreign income earned while a non-resident and then left out of the return filed on becoming a resident, it is a flat Rs 1 lakh up to Rs 5 crore. Nothing in the scheme, the rules, the forms or the Board's fifty answers mentions virtual digital assets, and no Indian court has decided whether a crypto holding is an asset located outside India. If it is, the exposure is thirty per cent under section 3 of the Black Money Act plus a penalty of three times that tax, one hundred and twenty per cent of value, with no limit on when it can be started. Filing by 31 December does not close the matter: the scheme's payment chain can run on into the middle of 2027.
Stated as at 3 October 2026. This note will not be updated after the scheme closes on 31 December 2026; check the dates against the position when you read it.
A one-time disclosure window for undisclosed foreign assets is open until 31 December 2026. It carries immunity under the Black Money Act, and for a person who paid his tax and simply never filled in the right schedule, it is very cheap.
It says nothing at all about crypto.
Not a word. Not in the fifteen sections of the scheme, not in the nine rules, not in the four forms, and not in the Board’s fifty frequently asked questions. The scheme speaks of an “asset located outside India”, which is the expression the Black Money Act uses, and it leaves untouched the one question a person holding bitcoin on an offshore exchange actually needs answered: is that an asset located outside India at all?
The nearest Indian material, Rhutikumari v. Zanmai Labs (Madras High Court, 25 October 2025), observes that a coin resides where the blockchain is. The English cases, led by ION Science, put it where the owner is domiciled. The UK Jurisdiction Taskforce says a decentralised asset has no location at all. None of the three was decided under this Act, and the Department has a fourth route that does not require the coin to be located anywhere.
This note sets out what the scheme is, what the question is, what each side would say about it, and how to think about it before the window shuts. The Black Money Act itself, its charge, its assessment machinery and its penalties, is dealt with separately in Black Money Act: who it reaches, which year it charges, what it costs.
Key points
- The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 is Chapter IV of the Finance Act, 2026, sections 130 to 144. The last date for a declaration is 31 December 2026 and the valuation date is 31 March 2026. The payment chain can run six months past the filing date, into mid-2027.
- Entry 1 applies where there is no satisfactory explanation of the source of investment, or foreign income was never offered to tax, and the two together do not exceed Rs 1 crore. It costs thirty per cent of each plus a further amount equal to that tax, an effective sixty per cent of the aggregate.
- Entry 2 applies where the asset was bought out of income already offered to tax, or out of income accruing or arising outside India while the holder was a non-resident and then left out of the return filed on becoming a resident. It is a flat Rs 1 lakh up to Rs 5 crore in aggregate. A clean source that is neither of those, an inheritance, a gift, exempt income or a loan, does not qualify.
- Nothing in the scheme material mentions virtual digital assets. That is a checked absence, not an assumption. The forms do carry a residual “any other asset” head, so there is a column to use; there is no instruction saying a coin belongs in it.
- No Indian court or tribunal has applied the Black Money Act to a crypto holding. The Government told the Lok Sabha on 8 December 2025 that the Act applies to all assets including virtual digital assets, though that answer says nothing about where such an asset is situated.
- For an exchange balance, the Department may not need to locate the coin at all. Section 2(11) reaches a financial interest in any entity located outside India.
- Against that, section 3 is a charging provision in a statute carrying imprisonment, and the burden of bringing an asset within “located outside India” is on the Revenue.
- Where all non-immovable foreign assets aggregate twenty lakh rupees or less, the sections 42 and 43 penalties and the sections 49 and 50 prosecutions do not apply. Section 51 and the charge are untouched.
What is the foreign asset disclosure scheme closing on 31 December 2026?
The scheme is Chapter IV of the Finance Act, 2026, running from section 130 to section 144, and section 130 gives it its short title: the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026.
Neither of the two dates that matter is in the Act. Section 130(2) leaves the scheme’s commencement to a date the Central Government appoints by notification in the Official Gazette, and section 131(1)(g) defines the “last date” as “such date as may be notified by the Central Government in the Official Gazette”. The last date and the valuation date were supplied by the Rules, notified as Notification No. 114/2026 dated 14 August 2026, G.S.R. 732(E), which are made under section 143: rule 1(2) brought the Rules themselves into force on 16 August 2026, rule 2(4) fixes the last date as 31 December 2026, and rule 2(1)(e) fixes the valuation date as 31 March 2026. A separate notification appointing 16 August 2026 for the scheme itself could not be traced; the Board’s frequently asked questions state that the scheme comes into force on that date and that a declaration may be filed between 16 August 2026 and 31 December 2026, and that is where the date is taken from here.
Section 132 says that “any person may make” a declaration, “on or after the date of commencement of this Scheme but on or before the last date”, for any previous year. Eligibility is policed through section 134(2)(a), under which the electronic verification must confirm that “the assessee making the declaration is an eligible assessee”, and that sends one back to the definition of “assessee” in section 131(1)(a). It reaches a person who was resident in India within the meaning of section 6 of the Income-tax Act, 1961 in the previous year, and also a non-resident or not ordinarily resident who was resident in India either in the previous year to which the income referred to in section 4 of the Black Money Act relates, or in the previous year in which the undisclosed asset located outside India was acquired.
Section 132 then supplies the qualifying failure, which must be one of three: no return was furnished under section 139 of the Income-tax Act; or the asset or income was not disclosed in a return of income furnished under that Act before the date of commencement of the scheme; or the asset or income escaped assessment within the meaning of section 147. The commencement-date qualifier in the second limb is easy to miss and decides cases: a non-disclosure in a return furnished on or after 16 August 2026 is not within it.
What does the scheme cost, and who qualifies for the flat fee?
Section 133 carries a table with two entries, and the difference between them is the whole commercial point of the scheme.
| Entry | What it covers | Ceiling | Amount payable |
|---|---|---|---|
| 1 | An undisclosed asset located outside India, meaning one for which the holder has no explanation of the source of investment or an explanation the Assessing Officer finds unsatisfactory (s.131(1)(j)); or undisclosed foreign income | Aggregate value of the asset and the income not exceeding Rs 1 crore | Thirty per cent of the value of the asset as on 31 March 2026, plus thirty per cent of the undisclosed foreign income, plus a further amount equal to that tax. Sixty per cent of the aggregate, before interest |
| 2 | (a) An asset acquired from income accruing or arising outside India during a period of non-residence, not declared in the relevant Schedule of the return filed on becoming a resident; or (b) an asset acquired from income already offered to tax under the Income-tax Act, 1961, not declared in the relevant Schedule of the return | Value not exceeding Rs 5 crore | A fee of one lakh rupees |
Two things are commonly got wrong about this table, and both are expensive.
The first is the test in entry 1. It is not “was the money taxed”. Section 131(1)(j) defines an undisclosed asset located outside India as one held by the assessee where “he has no explanation about the source of investment in such asset or the explanation given by him, is in the opinion of the Assessing Officer, unsatisfactory”. A holder whose source is perfectly explainable but is neither taxed Indian income nor non-resident foreign income, a gift, an inheritance, a loan, an exempt receipt, is not within that definition at all. Entry 1 does not arise for him, and nobody should be paying sixty per cent on that footing.
The second is the conditions in entry 2. Limb (a) requires income accruing or arising outside India, during non-residence, and non-declaration in the return filed on becoming a resident. Limb (b) requires income already offered to tax under the Income-tax Act by that assessee. A clean and innocent source that is neither, a gift, an inheritance, exempt or agricultural income, a loan, a spouse’s or a parent’s funds, qualifies for neither limb, and the holder falls back to entry 1 within its Rs 1 crore ceiling. That matters because the ceilings and conditions sit in the conditions column: a declaration wrongly made under entry 2 is a declaration that violates a condition of the scheme, which engages section 134(3)(b), while section 138 makes the Rs 1 lakh non-refundable.
Where entry 2 is available it is a very large saving. A person who paid tax on the money, bought an asset abroad with it, and simply never filled in Schedule FA can regularise up to Rs 5 crore for Rs 1 lakh. The comparator is not the full Black Money Act charge, because for that person the source of investment is explained, so the third limb of section 2(11) is not satisfied and section 3 has nothing to fasten on so far as the asset is concerned. It is the Rs 10 lakh penalty under section 43 for exactly that reporting failure, and because section 43 bites on each return in which the information was left out, a holding carried across several years carries that penalty several times over. The arithmetic still speaks for itself.
A point of precision on the ceiling. The condition in entry 2 reads “the value of the asset located outside India does not exceed five crore rupees”, in the singular. It is rule 5(1) that frames the limit in aggregate terms, together with the Board’s frequently asked questions, which also put the ceiling on “the aggregate value of the assets located outside India”. If the aggregate framing matters to a client, it is rule 5(1) and the FAQs that support it, not the table.
What a valid declaration buys comes from two different sections and they should not be run together.
Section 139 grants immunity from the levy of any further tax or penalty, and from prosecution, under the Black Money Act alone, in respect of the income or asset declared, for the previous year ending 31 March 2026 or any earlier previous year. It does not extend to the Income-tax Act, 1961, and it says nothing about the Prevention of Money-laundering Act, 2002, the Foreign Exchange Management Act, 1999, or any other law.
Section 136 does the different work of keeping the declared amount out of total income. It provides that the income, or the amount of investment in an asset, declared under the scheme shall not be included in the declarant’s total income for any assessment year under either the Income-tax Act, 1961 or the Black Money Act, 2015, provided the declarant pays within the extended period allowed by section 135(3). So the scheme does reach the Income-tax Act, but only on total income. It confers no immunity from penalty or prosecution under that Act.
Section 140 disapplies the scheme in two cases. The first is any income or asset that directly or indirectly represents proceeds of crime in respect of which proceedings under the Prevention of Money-laundering Act have been initiated or are pending. That exclusion is framed “in respect of” the particular income or asset, so on its words it is the asset that is tainted and not the declarant, and an unrelated money-laundering proceeding does not shut a declarant out. That is a construction and not a decided point, and the Department can be expected to read it more widely. The second exclusion is any income or asset relating to an assessment year for which assessment proceedings under the Black Money Act have already been completed.
How does a declaration work, and what destroys one?
The mechanics run on four forms and four statutory time limits, and three different things can destroy a declaration.
The declaration is filed electronically in Form 1. After the electronic verification required by section 134(2), the income-tax authority communicates the amount payable by an order in Form 2, within one month from the end of the month in which the declaration is made: section 135(1), read with rule 6.
The amount must then be paid within two months from the end of the month in which that order is received, under section 135(2). If it is not, section 135(3) allows a further period of not more than two months, with simple interest at one per cent for every month or part of a month. That gives an outer limit of four months from the end of the month in which the Form 2 order is received. Counted from the date the declaration is filed, and adding the month allowed for the Form 2 order, the chain can run to six months: a declaration filed on 1 December 2026 can carry a payment date of 31 May 2027.
The consequence of missing that outer limit is stated in the Form 2 order itself, at Part C: “In case of non-payment of amount payable within the time mentioned in (b) above, the declaration under Form-1 shall be treated as void and shall be deemed never to have been made.” Nothing in section 135 says so in terms, and the Board’s frequently asked questions put it only as the benefit of the scheme ceasing to be available for that declaration. And a part payment is not recoverable: section 138 provides that no amount paid under section 135 in pursuance of a declaration shall be refundable, so a declarant who pays something and then misses the limit loses both the declaration and the money, while the Form 1 admission stays on the record.
Two further provisions destroy declarations independently of the payment clock. Section 134(3) deems a declaration invalid if any material particular in it “is found to be false at any stage”, or if “the declarant violates any of the conditions referred to in this Scheme”, which includes the conditions in the fourth column of the section 133 table. Against that, rule 5(2) gives a valuation safe harbour: for an asset other than a bank account, a declared fair market value at variance with the value later determined is not invalid or void on the ground of misrepresentation, suppression of facts or false material particulars on account of that variance alone, provided the variance does not exceed twenty per cent of the value declared. There is a tolerance for getting the value wrong. There is none for getting the entry wrong.
Payment is intimated electronically, with proof, in Form 3 under rule 7, and the authority then passes an order in Form 4, rule 8 requiring an order “certifying the validity of the declaration in Form 1 and payment by the declarant for the purposes of section 139 of the Act”, within one month from the end of the month of receipt of the intimation furnished under section 135(4), by an order under section 135(5). By section 135(6) that order is conclusive as to the matters stated in it, which is what makes the Form 4 certificate worth having. How far that conclusiveness runs is itself untested, and it matters here: if it extends to the characterisation of the declared asset as one located outside India, a Form 4 certificate may cut against the declarant later as readily as for him.
Is a crypto holding an asset located outside India?
Everything above assumes the holding is a foreign asset. That assumption is doing all the work, and nobody has tested it.
Section 2(11) of the Black Money Act defines an undisclosed asset located outside India as an asset, including a financial interest in any entity, located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, where he has no explanation about the source of investment or the explanation is unsatisfactory in the Assessing Officer’s opinion. The scheme adopts the same definition in section 131(1)(j).
Neither the Act nor its rules define “located outside India”. There is no statutory situs rule to apply, so the expression falls to be given content by ordinary situs principles, and that is why the question is open rather than merely unlitigated. Note also the limb that is easy to skip: the definition reaches an asset held in the assessee’s name or in respect of which he is a beneficial owner. Coins held on an exchange in a relative’s name, or a wallet operated through a nominee, are within the definition on the beneficial ownership limb even though the account is not in the holder’s name.
The operative words are “located outside India”. A crypto holding has no physical location. What it has is a private key, and a record on a ledger that exists on machines everywhere and nowhere. So the question divides, and the two halves do not have the same answer.
A holding on a foreign exchange is, in substance, a claim against the exchange. The exchange controls the coins and the holder has a right against it. Whether that right is a debt or a beneficial interest under a trust is a prior question, and it decides which situs rule applies; the Madras High Court’s own authority for crypto being capable of being held in trust is a liquidation case about coins held by an exchange for its account holders. If it is a debt, the orthodox rule is not simply the debtor’s residence. A chose in action is situate where it is properly recoverable or enforceable (Dicey, Morris and Collins, Rule 129), the debtor’s residence being the usual indicator because that is normally where the creditor can enforce payment. The presumption is displaced where the contract shows the claim is recoverable elsewhere, for instance by an exclusive forum or arbitration clause, and where the debtor has more than one residence the terms of the contract decide. So the situs of an exchange balance is a question to be answered off the exchange’s terms of service, not off its certificate of incorporation. On most offshore exchange terms it points outside India, and this is the harder half to argue away.
A self-custody holding is different in kind. There is no counterparty at all. There is a seed phrase, which may be in the holder’s head, and a wallet reachable from any jurisdiction with an internet connection. There is no debtor whose residence can supply a situs, and no register that any one country maintains, although Rhutikumari at paragraph 24 places the ledger entry where the asset was issued.
On the statutory words neither half has a settled answer. The exchange case is the one with real exposure; the self-custody case is the one with no rule at all.
Where is a crypto-asset legally located?
Three answers are on offer, and they point in three directions. None of them has been applied by an Indian court to the Black Money Act.
The owner’s domicile. This is the analysis in ION Science Ltd & Anor v Persons Unknown & Ors [2020] EWHC 3688 (Comm), Butcher J, 21 December 2020, which is the case everybody cites. It has to be read for what it is. It was an urgent application, heard in private because of the risk of tipping off, at which the respondents neither appeared nor were represented. The court proceeded on the applicants’ evidence and on a single academic text, Professor Andrew Dickinson’s chapter “Cryptocurrencies and the Conflict of Laws” in Cryptocurrencies in Public and Private Law (Fox and Green eds, 2019), at paragraph 5.108. What the judge said was this:
The second of those aspects is on the basis that the lex situs of a cryptoasset is that of the place where the person or company who owns it is domiciled. That is an analysis which is supported by Professor Andrew Dickinson in his book Cryptocurrencies in Public and Private Law at para.5.108. There is apparently no decided case in relation to the lex situs for a cryptoasset. Nevertheless, I am satisfied that there is at least a serious issue to be tried that that is the correct analysis.
The court expressly recorded that there was no decided case, and put the point no higher than a serious issue to be tried. Osbourne v Persons Unknown [2022] EWHC 1021 (Comm) followed it on another without notice application and put it at “at least a realistically arguable case”. When Osbourne came back before the court in [2023] EWHC 2974 (KB) the judge recorded the lex situs of a non-fungible token as one of the interesting questions the case raised and held that it was “not necessary for me to address these issues today”. So in the nearly six years since ION Science the domicile theory has never been decided in a contested hearing.
One caution about using that analysis selectively. It is stated in ION Science and Osbourne as a rule about cryptoassets generally, and in Osbourne it was applied to tokens held in an account on a trading platform, not to a self-custody wallet. Applied consistently it would place an exchange-held coin in the holder’s country of domicile as well. And domicile is not residence: the Black Money Act is triggered by residence under section 6 of the Income-tax Act, 1961, so for a holder resident in India but domiciled elsewhere the analysis points away from India, not towards it.
If that analysis were applied here, and the holder were domiciled in India, it would put the holding in India and outside the charge on an undisclosed asset located outside India. It would not put him outside the Act. Section 4 separately charges undisclosed foreign income from a source located outside India, and gains realised on an offshore platform are capable of answering that description whatever the situs of the coin.
No location at all. The UK Jurisdiction Taskforce, in its Legal Statement on cryptoassets and smart contracts of November 2019, went the other way. For “a truly decentralised system such as Bitcoin”, it said, “it does not make much sense to say that there is any one country where the asset is recoverable or enforceable”, and there is “very little reason to try to allocate a location to an asset which is specifically designed to have none because it is wholly decentralised”. It concluded that “these complex issues will best be resolved by legislation, most likely following international cooperation”, and it placed taxation expressly outside its scope.
Two things follow for a holder in India, and they are not comfortable. The Taskforce’s tentative factors go to whether English law governs the proprietary aspects of dealings in a cryptoasset, that is, to applicable law rather than to situs, so the statement is not strictly an answer to the question the Black Money Act asks. And one of those factors looks to where the cryptoasset is controlled, “because, for example, a private key is stored here”. For a resident holding his own keys that points to India. On the Taskforce’s own factors a self-custody holding is no more foreign than it is nowhere.
Where the blockchain is. This is the Madras High Court, and it is dealt with in its own section below.
The Law Commission of England and Wales has the question open. Its project on digital assets and electronic trade documents in private international law published a consultation paper on 5 June 2025, the consultation closed on 8 September 2025, and the final report was expected during 2026 and had not been published when this note was written. Its provisional view is that the courts should stop trying to identify a single applicable law and should weigh a range of factors instead.
One case is often cited alongside these and decides something different. AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556 (Comm), Bryan J, 13 December 2019, held that a cryptoasset is property capable of being the subject of a proprietary injunction, applying Lord Wilberforce’s criteria in National Provincial Bank v Ainsworth. It does not address situs at all.
What did the Madras High Court say in Rhutikumari?
Rhutikumari v. Zanmai Labs Pvt. Ltd., O.A. No. 194 of 2025, decided by N. Anand Venkatesh J on 25 October 2025, is the nearest Indian authority, and it is more useful on this question than it is usually given credit for. It was an application under section 9(1)(ii)(a), (d) and (e) of the Arbitration and Conciliation Act, 1996, arising out of the WazirX freeze. The relief granted was security rather than an injunction: a direction to furnish a bank guarantee for Rs 9,56,000, renewable until the arbitration ended, or in the alternative to deposit that sum in escrow.
On characterisation the Court held, at paragraph 47, that a cryptocurrency “is a property. It is not a tangible property nor is it a currency. However, it is a property, which is capable of being enjoyed and possessed (in a beneficial form). It is capable of being held in trust.”
On location there are two passages, and they are doing different work.
Where the holding was situated was in issue. The first respondent’s preliminary objection, at paragraph 6, was that the application was not maintainable because the agreement provided for a Singapore seat under the SIAC Rules, “as the digital wallets are held outside India by a foreign entity”. The applicant’s answer, at paragraph 7, was that she used the platform through her mobile phone within the jurisdiction. At paragraph 10 the Court found, prima facie and for the purpose of maintainability, that “the asset namely the crypto currency was held by her in India by means of WazirX platform”.
The second passage is different. In its own analysis, at paragraph 22, the Court said:
Crypto currencies are streams of 1s and 0s residing in a blockchain managed by the issuer of the crypto currency. A unit of crypto currency – a single bitcoin or dogecoin or ethereum coin – is not created based on any central banker’s study of fiscal data, but is based on data mining and solving of problems, which add to the blockchain. Therefore, the bitcoin itself resides in the place where the blockchain is located.
That is a third theory, and it is neither the domicile test nor the no-location view. It should be cited for what it is: it was no part of the argument on either side, it was not necessary to the decision, and the judgment says nothing about the Black Money Act. Paragraph 22 follows a passage the Court attributes to the Supreme Court in Internet and Mobile Association of India v. Reserve Bank of India, but neither of its two propositions is to be found in the passages of that judgment the High Court cites, so the words are the High Court’s own.
Paragraph 10 is the more useful of the two, and it cuts both ways. For a holding on an Indian or India-facing platform it is a prima facie finding, on the facts and for jurisdictional purposes, that the asset was held in India. By exact parity of reasoning, a holding on Binance is held by means of the Binance platform, which is not in India. The only Indian material on the point therefore helps the domestic-platform holder and hurts the offshore one.
Does the Department need to locate the coin at all?
This is the Revenue’s best argument and it is usually missed, because the debate is conducted as though the only question were where a coin sits.
Section 2(11) reaches “an asset (including financial interest in any entity) located outside India”. The parenthesis is not decoration. A balance on an exchange is, as set out above, a claim against the exchange. If the exchange is resident outside India, the holder’s account relationship is itself capable of being a financial interest in an entity located outside India, and the entity’s location is not in doubt in the way the coin’s is. On that route an Assessing Officer never has to choose between domicile, blockchain and nowhere.
Two things support the reading. The first is Schedule FA itself, whose Table B is headed “Details of Financial Interest in any Entity held (including any beneficial interest) at any time during the calendar year ending as on 31st December, 2025”, and whose Tables A1 and A2 take foreign depository and custodial accounts: the return has been built for years around the idea that an account relationship with a foreign financial institution is the reportable thing, not the underlying instrument. The second is that the same parenthesis appears in section 3(2), which defines the value of an undisclosed asset, and in sections 42, 43, 49 and 50, so it carries through the valuation of the charge, the penalties and the prosecutions alike.
There are two answers to it. The limb still requires the financial interest to be in an entity, and a self-custody wallet has no entity behind it, so the argument reaches the exchange case and stops. And even there it does not dispense with the statutory test: the words “located outside India” qualify the asset, the financial interest is the asset, and the entity’s residence is evidence of where that interest is located rather than a substitute for deciding it. A return form built around foreign financial institutions cannot supply a situs rule the Act does not contain. That is why the division between the two halves of the problem, drawn above, is the division that actually matters.
What is the argument that the charge does not apply?
The openness of the question is usually written up as a risk. It is also a defence, and a strong one.
Strict construction. Section 3 is a charging provision in a statute whose Chapter V carries imprisonment of up to ten years. The Revenue must bring the asset within the words “located outside India”. It is not for the holder to show that his coin is located in India. On the material above, the law of situs for a crypto-asset is unsettled in India, unsettled in England, and expressly left to legislation by the UK Jurisdiction Taskforce. A charge that cannot be shown to be attracted is not attracted, and the ambiguity in a penal fiscal provision runs in the subject’s favour.
No location means not located outside India. For a self-custody holding the taxpayer’s case is cleaner still. The UK Jurisdiction Taskforce’s tentative factors go to applicable law rather than situs, as noted above. But its reason for declining to allocate a location, that a decentralised asset is “specifically designed to have none” and that there is very little reason to try to allocate one, is a reason any court construing “located outside India” would have to meet. If it is right, the asset is not an asset “located outside India” and the words of section 2(11) are not satisfied. That is not a plea for sympathy; it is the ordinary consequence of a condition in a definition going unfulfilled.
Source, not situs, is where most cases are won. Section 2(11) has three limbs, and situs is only the first. The second is beneficial ownership. The third is that the assessee has no explanation of the source of investment, or an explanation the Assessing Officer finds unsatisfactory. Coins bought with disclosed, taxed Indian funds remitted through banking channels, with the trail intact, do not satisfy that condition whatever their situs. Two qualifications go with it. The test is the Assessing Officer’s satisfaction and not the adviser’s, so the documents have to be assembled and kept rather than assumed to exist. And it answers only the asset limb: section 4 separately charges undisclosed foreign income from a source located outside India, so staking rewards, lending yield, airdrops and realised gains that never reached the return are exposed on their own footing however clean the acquisition trail.
The penalty is discretionary, and the state of the law is a reason. Section 41 says the Assessing Officer “may direct”, and so do sections 42 and 43. Where the law on situs is admittedly unsettled, where the notified return has no row for the asset, and where the Department’s own validation rules say nothing about it, a bona fide failure to report is a poor candidate for a discretionary penalty. Section 46 requires a show cause notice and an opportunity of being heard before any penalty under the Chapter, which is where that case is made. The Parliamentary answer of December 2025 cuts the other way for periods after it, because it is the Department’s stated position on the record, and it is harder to plead a bona fide belief that the Act could not reach crypto once that answer exists.
Income already taxed is deducted from the value, and this is the provision most often missed. Section 5(1)(ii) requires that income which has been assessed to tax under the Income-tax Act for an assessment year before the one to which this Act applies, or which is assessable or has been assessed under this Act, “shall be reduced from the value of the undisclosed asset located outside India, if, the assessee furnishes evidence to the satisfaction of the Assessing Officer that the asset has been acquired from the income which has been assessed or is assessable”. For a coin bought with taxed and documented Indian money that provision points to nil, and it does so even if the Assessing Officer wins every argument on situs. It is evidence-driven, which is another reason to assemble the trail now. Section 4(3) does the complementary work of keeping income charged under this Act out of total income under the Income-tax Act, so the same amount is not taxed twice.
Quantum. There is no rule for valuing a crypto holding on 31 March 2026 or on the date it comes to notice, beyond the residual rule 3(1)(h) discussed below. Which venue’s quotation, which conversion rate, which time of day: none of it is prescribed, and a self-custody holding has no exchange to ask. An assessment on a figure that cannot be ascertained is open to challenge on that ground alone.
Has any Indian court applied the Black Money Act to crypto?
No. On a search of the reported tribunal and High Court material, no order of any Indian court or tribunal has applied the Black Money Act, 2015 to a cryptocurrency or virtual digital asset holding. The decisions under that Act concern conventional offshore assets, principally foreign bank accounts and foreign entities.
That absence should not be mistaken for a position. Two things cut against it.
The first is that the Government has told Parliament that the Act does reach these assets. In answer to Lok Sabha Unstarred Question No. 1366, answered on 8 December 2025, asked by Shri Anand Bhadauria and answered by Shri Pankaj Chaudhary, Minister of State in the Ministry of Finance, on the subject “Black Money in Crypto Currency”, the Ministry said that the Prohibition of Benami Property Transactions Act, 1988 and the Black Money Act “apply to all assets, including VDAs”, and that the Black Money Act “enables action against undisclosed foreign assets, including VDAs”. Two qualifications should be read with it. The sentence is a composite statement about two statutes, given in answer to a question about monitoring black money on crypto exchanges. And it says nothing at all about where a crypto holding is situated. It establishes that the Department does not regard the asset class as outside the Act; it does not establish that a coin held through an offshore exchange is an asset located outside India. The answer is taken here from press reports of it; the official text could not be retrieved, and anyone relying on it should take it from the question and answer themselves.
The second is that there are reported Indian orders in which an assessee’s cryptocurrency dealings were brought to tax and the exchange is named on the face of the order. In Surya Pratap Singh Chauhan v. ITO, Ward-2(1), Lucknow, ITA No. 642/LKW/2025 (ITAT Lucknow ‘A’ Bench, order dated 13 February 2026, assessment year 2018-19), the Tribunal recorded that the Assessing Officer had proceeded on “the submissions made by the assessee and the transaction statements obtained by him from Coin Secure Exchange and Zebpay Stock Exchange”, the order’s own description of the exchanges. In ITO v. Shahid Shabbir Godil, ITA No. 1166/MUM/2025 (ITAT Mumbai ‘C’ Bench, order dated 11 August 2025, assessment year 2018-19), ZebPay is named throughout, the Tribunal recording that “only transactions in Crypto Currency carried out through Zebpay have been audited”.
What is striking is what these orders do not contain. Neither discusses the Black Money Act, or Schedule FA, or where the holding is situated. The exchanges in both were Indian, so neither order says anything directly about a foreign-held coin. What they do show is the frame the Revenue has used so far: unexplained investment and capital gains under the Income-tax Act, 1961, and not the Black Money Act.
So the position as at the date of this note is that the statute is said by the Government to apply, the Department has not used it on these facts, and no court has ruled. That is an open question, not a safe harbour.
Do I report crypto in Schedule FA of ITR-2?
The notified ITR-2 for assessment year 2026-27 is the clearest evidence of how the Department itself has thought about this, and it cuts both ways.
Schedule FA is headed “Details of Foreign Assets and Income from any source outside India” and runs to ten tables, labelled A1 to A4 and B to G: foreign depository accounts, foreign custodial accounts, foreign equity and debt interest, foreign cash value insurance or annuity contracts, financial interest in any entity, immovable property, any other capital asset, accounts in which the assessee has signing authority and which have not been included in A to D above, trusts created under the laws of a country outside India in which the assessee is a trustee, beneficiary or settlor, and, residually, any other income derived from any source outside India not included in items A to F above.
Not one of them is a virtual digital asset entry. The words crypto, cryptocurrency, virtual digital asset and VDA do not appear in any table heading, in any column heading, or in the note at the foot of the schedule.
The same form carries an entire Schedule VDA, headed “Income from transfer of Virtual Digital Assets”, filled transaction by transaction with the date of acquisition, the date of transfer, the cost of acquisition and the consideration received, and carrying its total into item C2 of Schedule CG. So the notified return recognises virtual digital assets fully for the purpose of taxing a transfer, and not at all for the purpose of reporting a foreign asset.
Where a foreign-held coin goes, if anywhere, is itself unresolved, and the common answer that it must be Table D does not survive a reading of the rest of the schedule. Table D is headed “Details of any other Capital Asset held (including any beneficial interest) at any time during the calendar year ending as on 31st December, 2025”, so it is confined to a capital asset and a holding on trading account does not sit there. But three other tables are available on their own words. Table A2 takes a foreign custodial account and asks for the name and address of the financial institution, the account number, the peak balance and the closing balance, which is the shape of an offshore exchange account. Table B takes a financial interest in any entity, and nothing on the form confines “financial interest” to equity or debt. Table E takes an account in which the assessee has signing authority and which has not been included in A to D above. Table G, residuary for income from any source outside India, catches the income but not the holding. A holder cannot reason from the absence of a virtual digital asset row to the absence of an obligation.
What Table D does show is the mismatch. Its columns are the serial number, the country name and code, the ZIP code, the nature of the asset, the ownership as direct, beneficial owner or beneficiary, the date of acquisition, the total investment at cost in rupees, the income derived, the nature of that income, and the amount offered in the return with the schedule and item number where it is offered. The only locational data it asks for is a country code and a ZIP code. A coin generates neither, and the form gives no guidance on what to put in those two cells.
Two framing points go with all of this. Schedule FA is for a resident other than a not ordinarily resident: a non-resident and a resident but not ordinarily resident do not fill it, and sections 42 and 43 of the Black Money Act, which are the reporting penalties, are drawn in the same terms, as are sections 49, 50 and 51(1). And the schedule does not report the previous year. Its tables report holdings at any time during the calendar year ending 31 December 2025, while residential status is fixed for the previous year ending 31 March 2026, and the scheme values on 31 March 2026. A coin acquired in February 2026 falls outside the calendar-year window and has no place in Schedule FA for assessment year 2026-27 at all, whatever its situs.
Nothing official closes the gap. The Board’s e-filing validation rules for ITR-2 for assessment year 2026-27 contain no rule touching Schedule FA at all, and the three rules that mention virtual digital assets do nothing more than police Schedule VDA itself and carry its total into item C2 of Schedule CG. The Department’s own user manual for ITR-2 devotes two sentences to the whole of Schedule FA, saying only that the assessee must “provide details of foreign asset or income from any source outside India” and that “this schedule need not be filled up if you are Not Ordinarily Resident or a Non-Resident”. It does not describe Table D, and it says nothing about crypto. The notified instructions to Form ITR-2 for this year could not be located at any primary source, so nothing here turns on what they may or may not say.
A reader may take that architecture as a considered departmental view that a crypto holding is not a foreign asset. Or he may take it as a form that has not caught up with the Government’s own position in Parliament. The second reading is the stronger one, because a return form notified under rules cannot cut down a charging section in the parent Act, and no court has read a charge down because a row was missing from a return. The architecture is evidence of departmental thinking. It is not a limit on the statute.
What is the exposure if the holding is a foreign asset and was never declared?
The Black Money Act is not an ordinary charging statute and the numbers are not ordinary numbers. The machinery is set out in full in the Black Money Act: who it reaches, which year it charges, what it costs; what matters here is the shape of it.
Section 3 charges an undisclosed foreign asset at thirty per cent, and the proviso to section 3(1) provides that an undisclosed asset located outside India “shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer”. For an asset acquired before the Act commenced on 1 July 2015, section 72(c) does the same work, where no declaration was made under Chapter VI of that Act, by deeming it to have been acquired in the year in which the section 10 notice is issued.
Value is not the market price, and for a volatile asset this is the most important sentence in this note. Section 3(2) defines value as fair market value determined as prescribed, and rule 3(1)(h) of the Black Money Rules, 2015 values a residual asset, which is where a coin falls, at the higher of its cost of acquisition or the amount invested and the price it would fetch in the open market on the valuation date, which Explanation 2 to rule 3 fixes as 1 April of the previous year. An asset bought in 2017 for Rs 40 lakh and noticed in the previous year 2027-28 is charged on the higher of Rs 40 lakh and its open-market price on 1 April 2027. A collapse in price does not reduce the charge. It fixes it at cost.
Section 41 then permits the Assessing Officer to direct that the assessee pay, “in addition to tax, if any, payable by him, a sum equal to three times the tax computed under that section”. The words are “may direct”, not “shall”, and section 46 requires a show cause notice and an opportunity of being heard before any penalty under the Chapter. But because the penalty is in addition to the tax, the exposure is ninety per cent of value on top of the thirty, taking the combined figure to one hundred and twenty per cent.
Sections 42 and 43 add a separate penalty of Rs 10 lakh for each previous year in which the default occurred, and they do different things. Section 42 penalises the failure to furnish the return at all, and only where it is not furnished before the end of the relevant assessment year. Section 43 presupposes a return that was furnished and penalises either a failure to give information in it about a foreign asset or foreign income, or the furnishing of inaccurate particulars of it. In both the verb is “may direct”, and neither requires wilfulness.
Sections 49 and 50 then carry prosecution, and they are narrower in two ways. Both require that the assessee “wilfully fails”, and section 50 reaches only the wilful failure to furnish information or to disclose income, not the furnishing of inaccurate particulars, so the penalty and prosecution provisions are not a mirror pair. Each is punishable with rigorous imprisonment of not less than six months and up to seven years, and with fine. Section 49 carries its own escape: a person is not to be proceeded against under it if the return is furnished before the expiry of the assessment year. Separately, section 51 punishes a wilful attempt to evade tax with rigorous imprisonment of not less than three years and up to ten years and with fine, and section 52 punishes a false statement in a verification on the six-month to seven-year scale.
On limitation, the point must be put precisely, because the loose version gets quoted back. The Act is not without limitation. Section 11(1) requires the assessment or reassessment order to be made within two years from the end of the financial year in which the notice under section 10(1) was issued, and no amendment has altered it. But two years is a floor and not a ceiling: section 11(3) takes set-aside and appellate-direction cases out of sub-section (1), and Explanation 1 excludes from the computation the time taken in reopening the proceeding, any period of court stay, and the period from a reference for exchange of information under section 90 or 90A of the Income-tax Act or section 73 of this Act until the information is received or one year, whichever is less, with any remaining period of under sixty days extended to sixty. In an offshore matter that exclusion is the rule, not the exception.
What the Act lacks is any limit on initiation. There is no provision corresponding to section 149 of the Income-tax Act, 1961, and section 10 places no outer limit on when the notice may be issued. Read with the proviso to section 3(1) and with section 72(c), an asset acquired in any earlier year can be brought to charge whenever it surfaces.
Does the twenty lakh rupee threshold cover a small crypto holding?
For most retail holders this is the most useful fact on the reporting side of the exposure, though it does nothing about the charge.
Until 1 October 2024 the exemption from the sections 42 and 43 penalties was confined to an asset “being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to five hundred thousand rupees at any time during the previous year”. It was substituted, by section 164 of the Finance (No. 2) Act, 2024, with effect from 1 October 2024, by a far wider proviso. The substituted proviso to section 42 reads:
Provided that this section shall not apply in respect of an asset or assets (other than immovable property) where the aggregate value of such asset or assets does not exceed twenty lakh rupees.
The provisos to sections 43, 49 and 50 are in identical terms, with a comma after “(other than immovable property)”.
Three features matter. A crypto holding is not immovable property, so it is within the relief. The proviso fixes no date at which the aggregate is to be taken, unlike the peak balance test it replaced, which cuts both ways on a volatile asset: there is no statutory moment to fix, and an Assessing Officer will not choose the moment that helps the holder. And the same threshold now governs prosecution: it was inserted as a second proviso to section 49 and as the proviso to section 50 by section 160 of the Finance Act, 2026, which deems it “to have been inserted with effect from the 1st day of October, 2024”, so the penalty and prosecution reliefs run from the same date and the relief reaches pending matters.
What the threshold does not do is equally important, and this is where the usual summary of it is simply wrong. It removes the Rs 10 lakh penalties under sections 42 and 43 and the prosecutions under sections 49 and 50. It removes nothing else. The proviso appears in those four sections and nowhere else in the Act, so section 51 continues to apply whatever the value of the holding, as do section 52 and section 53. It does nothing about the section 3 charge or the section 41 penalty, which turn on whether the source of investment is explained, and nothing about the obligation to report. A holder whose non-immovable foreign assets aggregate twenty lakh rupees or less is outside the Rs 10 lakh penalty and outside the sections 49 and 50 prosecutions. He is not outside the Act and he is not outside Chapter V.
One further caution on the arithmetic. The threshold is an aggregate across every non-immovable foreign asset, not a figure per asset, so a modest coin balance alongside foreign shares or an offshore account can breach it on numbers that feel small.
What should a crypto holder do before 31 December 2026?
This is not a question that can be answered in the abstract, and anyone who answers it in the abstract is guessing. But the shape of the analysis is clear enough to set out.
Start with where it is held. A balance on an offshore exchange and a self-custody wallet are not the same problem and should not be given the same answer. The exchange case is the one with real exposure, and it is exposed twice over, because the Department can reach it through the financial interest limb without locating the coin. Read the exchange’s terms of service: the forum and governing law clauses are what decide where a contractual claim is recoverable. A holding on an Indian or India-facing platform has Rhutikumari at paragraph 10 behind it.
Then look at the source. The Black Money Act bites on an asset for which there is no satisfactory explanation of the source of investment. Coins bought with disclosed, taxed Indian funds remitted through banking channels, with the trail intact, are a different case from coins acquired peer to peer, by mining, by airdrop, or on an exchange that has since closed, which leave no banking trail even for an honest holder. Assemble the trail now; the statutory test is the Assessing Officer’s satisfaction, not the adviser’s confidence. The trail does double duty. Section 5(1)(ii) requires income already assessed, or assessable, to be reduced from the value of the undisclosed asset where the assessee furnishes evidence that the asset was acquired from it, so for a coin bought with taxed and documented money the value can fall to nil even on an adverse view of situs. And remember that a clean acquisition trail answers the asset limb only. Staking rewards, lending yield, airdrops and realised gains are foreign-source income in their own right.
Then check whether entry 2 is actually available. It is the cheapest outcome in the scheme and it is also the narrowest. The asset must have been acquired out of income already offered to tax by this assessee, or out of income accruing or arising outside India during non-residence and left out of the return filed on becoming a resident. An inheritance, a gift, exempt or agricultural income, a loan or a relative’s funds qualify for neither limb. Getting this wrong is not a repricing: it is a condition of the scheme, and a declaration that violates a condition is invalid under section 134(3)(b) with the fee non-refundable under section 138.
Then test the twenty lakh threshold. If all non-immovable foreign assets aggregate twenty lakh rupees or less, the Rs 10 lakh penalties under sections 42 and 43 and the prosecutions under sections 49 and 50 do not apply. That resolves the reporting exposure for a great many holders. It stops there: section 51 carries no threshold, so a holding kept off the return in order to escape the charge is not protected by its size.
Then weigh the two errors against each other. Declaring a holding that was never a foreign asset costs real money and puts a signed admission on the record, with no immunity under the Foreign Exchange Management Act, 1999 and none under the Income-tax Act beyond the exclusion from total income in section 136. It also cannot be hedged: Form 1 is a structured electronic form with four closed selections in Part B and six asset types in the annexures, and no remarks field, so a coin declared out of caution is declared under “any other asset” with a valuation report, and the form shows an unqualified declaration that the asset was located outside India. Not declaring a holding that was one forfeits the only immunity available and leaves an exposure with no limit on when it can be started. These are not symmetrical, and the right answer depends on the size of the holding, where it sits and how clean the source is.
If the decision is not to declare, the reporting question does not go away. The scheme answers the past. It does nothing about the return for assessment year 2026-27, which still has to carry whatever Schedule FA requires, and the question of which table a coin belongs in is live now rather than historic. Two dates coincide usefully here: 31 December 2026 is both the last date for a declaration under the scheme and, under section 139(5) of the Income-tax Act, 1961, the last date for a revised return for assessment year 2026-27, being three months before the end of that assessment year, unless the assessment is completed earlier. A holder who concludes that his coin is not a foreign asset should still decide, and record, what he is doing about Schedule FA, and he has until the same date to do it in.
If the decision is to declare, start the valuation now. Form 1 requires a valuation report for an asset declared under “any other asset”, the value has to be taken as at 31 March 2026, and rule 5(2) allows a variance of not more than twenty per cent of the declared fair market value before the declaration is at risk. Twenty per cent is a narrow band for an asset class that moves that far in a week. And file early enough to leave room in the payment chain: the Form 2 order can take a month, payment two more, and the extension another two.
And do it on advice, in writing, before the window shuts. Whatever is decided, the reasoning should exist on paper and be dated before 31 December 2026. The caveat that cannot go on the form belongs in the file. A considered contemporaneous view is worth a great deal if the question is asked later, and it costs nothing to record.
This note is general commentary on the law as at 03 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.