Somewhere in Gurugram or Bengaluru, an Indian freelance consultant is closing a five-figure-dollar contract with a US client. Two years ago, an incorporation service told her a Delaware LLC would look more professional to US clients and keep her fees in dollars. She paid $500, opened a US bank account, and started billing.
She now books 20% of gross receipts as US-side expenses, remits 40% to her Indian proprietorship (declared under Section 44AD), and lets the remaining 40% sit in the LLC. She has never told the Income Tax Department the LLC exists. She has never told the Reserve Bank of India. She has never registered under GST. She is confident nothing will happen. She is wrong.
The moment an Indian Resident and Ordinarily Resident owns a foreign entity — however small, however personal — she enters the field of four parallel statutes, each with its own reporting obligation, its own penalty framework, and its own timeline.
Income-tax Act, 1961.
Every foreign asset must be reported in Schedule FA of the ITR. Non-disclosure carries a Section 271GB penalty of Rs. 10 lakh per year. Four years of silence adds Rs. 40 lakh in reporting penalties before we count any tax. Add Section 270A misreporting penalty (up to 200% of tax on the concealed income) and Section 234A/B/C interest — the ITA-side alone is a formidable bill.
Two collateral risks sit on the same axis. Section 44AD's presumptive scheme is capped at a turnover of Rs. 2 crore (Rs. 3 crore where cash receipts stay under 5%). If the LLC's US-client receipts are looked through and added to the Indian proprietorship's turnover, the aggregate can easily breach the ceiling — pushing the assessee out of Section 44AD and into regular assessment with a mandatory tax audit under Section 44AB. And the LLC and its Indian owner are Associated Enterprises under Section 92A, making every remittance an international transaction requiring Transfer Pricing documentation and Form 3CEB — never filed, Rs. 1 lakh penalty per year under Section 271BA.
Black Money (Undisclosed Foreign Income and Assets) Act, 2015.
This is where the numbers get serious. Section 3 imposes a flat 30% on the value of the undisclosed foreign income and the undisclosed foreign asset — no exemption, no set-off. Section 41 adds a penalty of three times the tax. Total headline: 120% of asset value. Sections 42 and 43 add Rs. 10 lakh per year for non-filing of the return of foreign asset. Sections 50 and 51 carry rigorous imprisonment of up to 7 years for wilful non-disclosure, up to 10 years for wilful evasion.
Two features of BMA make it uniquely dangerous. It has no outer limitation period — every year of non-disclosure remains at live risk, indefinitely. And a Section 51 conviction is a scheduled offence under the Prevention of Money Laundering Act. The Finance (No. 2) Act, 2024 offers narrow relief: no penalty, no prosecution where the aggregate of undisclosed foreign assets (other than immovable property) does not exceed Rs. 20 lakh. Above that, everything stacks.
Foreign Exchange Management Act, 1999 (via the Overseas Investment Rules & Regulations, 2022).
Since 22 August 2022, a resident investing in a foreign entity that gives her 10%+ voting power or control makes an Overseas Direct Investment (ODI). Three filings become mandatory: Form ODI at remittance (through the AD Bank), APR by 31 December each year, and FLA to RBI by 15 July each year. Every missed filing is a separate contravention under Section 13, penalisable up to three times the amount involved. Compounding under Section 15 is available — but only if applied for before the Enforcement Directorate steps in.
Goods and Services Tax.
If aggregate turnover crossed Rs. 20 lakh, GST registration was mandatory. Non-registration attracts Section 122(1)(xi) penalty. Worse, had she registered and filed a Letter of Undertaking, her export of services would have been zero-rated — entitling her to full refund of unutilised input tax credit. Instead of a refund, she faces a penalty. That is the true cost of silence.
Union Budget 2026, through Clauses 114-128 of the Finance Bill and enacted under the Income-tax Act, 2025 (in force from 1 April 2026), introduced the Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026). For eligible small taxpayers — aggregate undisclosed foreign income and asset ≤ Rs. 1 crore as on 31 March 2026 — the scheme provides a one-time voluntary window with two categories:
● Category 1 (undisclosed foreign income or asset): pay 60% of the value — 30% tax plus 30% additional charge.
● Category 2 (foreign asset purchased from already-taxed income but not disclosed in Schedule FA): pay a flat Rs. 1 lakh fee.
On payment, the declarant receives full and automatic statutory immunity from Black Money Act penalties and prosecution, and from Income-tax Act reassessment for the declared year and preceding years — by operation of law, not discretion.
The scheme opens for a six-month window from the date the Central Government notifies the commencement in the Official Gazette under Section 130. As at the date of this post, the commencement date has not yet been notified. Declarations filed pre-notification are void. But the moment notification comes, the clock starts. Six months. No extension expected.
For our advertising consultant, this is the difference between a Rs. 65-75 lakh regularisation cost and a Rs. 2.5-3.5 crore exposure with criminal risk — a delta that changes the arithmetic of an entire practice.
India is a signatory to the OECD Common Reporting Standard and to the FATCA Inter-Governmental Agreement with the United States. What this means practically: US banks holding LLC accounts report the ultimate beneficial owner's tax residence country to the IRS. The IRS passes that information to CBDT. CBDT feeds it into the Insight portal. The Assessing Officer's desktop already has, or will shortly have, the record of the Delaware LLC and its bank account.
The eligibility carve-out under FAST-DS 2026 excludes any person to whom a Section 148 notice under the ITA or a Section 10 notice under the BMA has already been issued. Once the notice arrives, the amnesty door closes. The economics of voluntary regularisation are decisive only if the taxpayer moves first — before the data-driven notice arrives, before the six-month window closes, before the LLC becomes someone else's file.
For every consultant, freelancer, digital entrepreneur or professional in this position, the compliance response runs on two parallel tracks:
Track A — FEMA (immediate). Reconstruct the ODI file. File belated Form ODI, APR for every year missed, and FLA for every year missed, through the AD Bank on the Late Submission Fee route. If declined, file a compounding application before the RBI Regional Office.
Track B — Tax (prepared now, filed on notification). Establish the aggregate value of foreign income and asset as at 31 March 2026. If under Rs. 1 crore, prepare the FAST-DS declaration and file on the day of Gazette notification. If over, prepare updated returns under Section 139(8A) and a separate Black Money Act return under Section 8.
Alongside: GST registration (backdated if the threshold was crossed), corrected ITRs, Form 3CEB for Transfer Pricing compliance, and a hard structural decision on whether the LLC continues, winds up, or is replaced by a direct Indian-billing model.
At DSRV & Co. LLP, we handle cross-border regularisation for consultants, digital entrepreneurs, technology professionals with foreign ESOPs, and returning NRIs. Our practice spans ITA appellate work, Black Money Act representation, FEMA compounding before RBI, and GST litigation — the precise four-statute stack this fact pattern touches. If you or your colleagues own a foreign entity, a foreign bank account, foreign ESOPs, or foreign investments not fully reported in Indian ITRs, we can:
● Compute your aggregate exposure and confirm FAST-DS 2026 eligibility;
● Prepare the belated FEMA filings and compounding application;
● Draft the FAST-DS declaration ready for filing on notification day;
● Prepare updated ITRs and correct any earlier presumptive-section errors;
● Advise on the structural decision — continue, wind up, or restructure.
The window is short. The stakes are real. Reach out before the notice does.
CA Sanjay Kumar Agrawal
DSRV & Co. LLP
Chartered Accountants
Gurugram | Delhi NCR
Email: sanjay@dsrvindia.com | Phone: +91 9810116321 | Web: www.dsrvindia.com
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