Revised ITR won't save you: Foreign asset errors can trigger penalty, probe
New Delhi, Dec 2, 2025
The NUDGE scheme is not a free pass. Paying up may clear past tax arrears - but it does not erase exposure under other laws.
If you thought paying a tax fine wipes the slate clean, think again. Under CBDT’s latest “Nudge” initiative, the government is urging taxpayers to voluntarily disclose foreign assets — but settling taxes doesn’t shield them from far more serious legal scrutiny.
Lawyers told Business Standard that PMLA (Prevention of Money Laundering Act) and FEMA (Foreign Exchange Management Act) violations can still trigger investigations even after payment. For high net worth individuals (HNIs) and global investors, this is a wake-up call: India’s foreign-asset net is tightening, and compliance now goes far beyond filing a revised return.
Why HNIs and Global Investors Shouldn’t Relax After Paying Tax
Last week, the Central Board of Direct Taxes launched the second phase of its ‘Nudge’ initiative targeting taxpayers with undisclosed foreign assets and income. This is based on information the Indian government has received from other foreign governments as a part of the international OECD framework.
The move targets taxpayers with undisclosed foreign assets or income — and is flagged through global data exchanges under the Common Reporting Standard (CRS) or related frameworks. Undisclosed foreign assets include assets like real estate holdings, stocks, bonds, other forms of foreign income being received by the residents that have not been disclosed by these individuals in their tax returns.
High-risk individuals are being sent SMS and email alerts to revise and declare their foreign assets and income by December 31, 2025, failing which they risk heavy penalties.
"The Income Tax Department today possesses an unprecedented degree of visibility into offshore financial holdings of Indian residents, primarily on account of India’s participation in the OECD Common Reporting Standard (CRS) and the FATCA framework with the United States. Through these automatic-exchange mechanisms, the Department receives annual, account-level information from over a hundred jurisdictions, including details of beneficial ownership, balances, investment income and, in several cases, the corporate or trust structures through which such assets are held. This dataset is further supplemented by intelligence from authorised dealer banks under FEMA, cross-border remittance trails, information shared by foreign regulators, and inputs from enforcement agencies," said Tushar Kumar, Advocate, Supreme Court of India.
While the NUDGE scheme offers a chance for belated disclosure and payment of due tax, experts warn that this is purely a tax-compliance window — not a shield against other regulatory statutes.
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"It is equally important to clarify that the present nudge is seemingly not an amnesty in the classical sense and does not, by its mere issuance, extinguish exposure under parallel regulatory regimes. While a taxpayer may mitigate prospective consequences under the Income-tax Act or the Black Money (Undisclosed Foreign Income and Assets) Act by voluntarily correcting disclosures, any underlying violation of FEMA, such as unauthorised acquisition of foreign immovable property, breaches of LRS limits, or non-compliant investment structures, seemingly does not stand condoned. Such infractions may still invite compounding proceedings or regulatory scrutiny from the Reserve Bank of India or ED, depending on the nature of the contravention," explained Kumar.
What this essentially means is paying the due tax and penalty under NUDGE does not grant immunity from potential investigations under the PMLA or FEMA if the foreign assets/income were acquired unlawfully or not routed via compliant channels.
The caution from legal experts becomes sharper when viewed against the backdrop of India’s last major disclosure window.
In 2015, the government had rolled out a one-time Black Money amnesty scheme, offering complete immunity to taxpayers who declared undisclosed foreign assets by September 30 that year. Participants paid a 30% tax plus a 30% concessional penalty, and in return received protection from prosecution under a wide range of statutes, including the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and even the Customs Act. The current CBDT Nudge initiative, however, carries no such legal shield. .
In fact non-disclosure of foreign assets can still trigger scrutiny from the Reserve Bank of India (RBI) or the Enforcement Directorate (ED), especially if the transactions involve violations of FEMA or PMLA.
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" There can be cases however, where a person may have not complied with the income tax law, but this may not be a violation of FEMA, for instance, as section 6(4) states that if a person has returned to India after being non-resident, then one need not declare overseas assets to the RBI but under the income tax act one would have to declare assets even though they were acquired legitimately while one was non-resident.
In any case, one needs to be compliant and every law and everyone must review the matters and make complete and proper declarations," said Anil Harish, Managing Partner, D.M. Harish & Co.
Harish cited the example of a case where a person in India incorporated a company outside India. The capital of the foreign company was just $1. The company did not do any business. Unfortunately, he did not declare in Schedule FA, the share that he held. The Income Tax department found out about this holding and levied a penalty of ₹10 lakh per year for about four years and also started a prosecution against him! It is therefore critical to submit information about foreign assets correctly and precisely.
What HNI's must do:
Filing a revised ITR under NUDGE does not guarantee safety. Investors with foreign asset exposure must also ensure full documentation of source of funds, remittance records, and proof of legal foreign exchange transfer under FEMA.
Even after payment, enforcement agencies including the Enforcement Directorate (ED) or Customs may initiate probes if they suspect money laundering, smuggling, or rule violations. The NUDGE window is not amnesty.
The 2015 amnesty scheme offered immunity across tax and other laws — but the current campaign doesn’t. Experts caution against assuming that paying tax and fine under NUDGE resolves all past compliance issues.
Foreign-asset holders must review whether transactions were routed legally (for example, under LRS — Liberalised Remittance Scheme), and whether foreign income was declared. Any discrepancy could trigger investigations under PMLA/FEMA.
Wealthy Indians holding overseas assets must now factor in regulatory risk and compliance cost. Asset valuation, repatriation plans, legacy planning — all require scrutiny. This could mean rethinking investments in foreign property, offshore trusts, or non-transparent holdings.
[The Business Standard]
