The Forgotten Foreign Bank Account

An Indian professional works in the UK for 15 years, opens a bank account, accumulates salary savings and builds a financial cushion.

Eventually, the individual returns to India permanently. The overseas bank account remains open, but no further transactions are initiated.

The individual assumes that the money was earned legitimately while working abroad, the account is no longer used, and there is nothing left to worry about.

That assumption can be costly.

An inactive foreign bank account does not cease to have tax-reporting implications. Nor does the legitimacy of the original savings resolve every subsequent compliance issue.

For returning Non-Resident Indians (NRIs), five questions matter:

01Returning to India changes the tax equation

The first question is not whether the foreign account is active. It is the individual's residential status for each relevant tax year.

Indian tax law distinguishes between three categories, and the tax treatment of foreign income differs across them:

The date of return alone does not determine the answer. Residential status must be established each year using the statutory tests. Many returnees are RNOR for the first two or three years and become ROR only after that.

Practical implication: establish residential status first, before deciding whether foreign interest is taxable or whether overseas assets must be disclosed.

02Does a dormant foreign bank account have to be disclosed?

For a taxpayer who is ROR, the return requires specified foreign assets to be reported in Schedule FA. The obligation is not limited to accounts that are actively operated. A foreign bank account may require disclosure even if:

• It has not been used for several years.
• It contains savings accumulated during overseas employment.
• It generates little or no interest.
• Its balance is nil at the end of the period.

What matters is whether the taxpayer held the account at any time during the reporting period, not the amount in it or whether it produced income.

Two technical points are often missed. First, the Schedule FA reporting period follows the calendar year, not the Indian financial year. Second, for tax year 2026–27 onwards, the provisions and prescribed forms under the Income-tax Act, 2025 apply; earlier years remain governed by the law in force for those years.

03Money earned before returning: is it taxable again?

Take our professional with £150,000 in a UK bank account, built from 15 years of salary earned while a non-resident of India. The individual returns and, in due course, becomes ROR.

The original savings do not become taxable merely because the individual has come home. But three separate questions arise:

• Source of funds. Employment contracts, salary slips, overseas tax returns and bank statements establish how the money was accumulated.
• Subsequent income. Interest credited after the individual becomes ROR may be taxable in India, with relief under the applicable tax treaty where available.
• Disclosure. A foreign account funded by legitimate savings can still create a reporting problem if Schedule FA was not filed when it was required.

The source of funds and compliance with disclosure obligations are separate issues. Legitimate savings do not cure a reporting omission.

04The more serious risk: what if someone else operates the account?

An account left unattended presents a different kind of risk.

Suppose the account is still registered to an old overseas mobile number and email address. The owner stops monitoring it and assumes nothing can happen without their knowledge. Years later, the account receives unexplained transfers, or is accessed by someone else.

Several scenarios are possible:

• The account is compromised through stolen credentials or a SIM-swap on a lapsed mobile number.
• Someone, including an insider at the bank, obtains unauthorised access.
• The account holder knowingly lets another person use the account.
• The account receives funds linked to fraud, money laundering or other criminal activity.

These scenarios carry very different legal consequences. Unexplained credits or transactions inconsistent with the owner's profile may attract scrutiny from the bank or the authorities. Where an account is knowingly used to disguise the origin or movement of criminal proceeds, the consequences are far more serious.

But a dormant account is not, by itself, evidence of hawala or money laundering. Nor does the discovery of suspicious transactions establish that the owner took part. The questions that matter are who controlled the account, who initiated the transactions, who benefited, and whether the owner knew.

05Black Money Act: the ₹10 lakh penalty and the ₹20 lakh threshold

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 addresses failures to disclose foreign assets and foreign income. Two recent amendments matter.

2024: Penalty provisions

Section 43 provides for a penalty of ₹10 lakh where a resident fails to disclose, or furnishes inaccurate particulars of, foreign assets or foreign income in the return. The Finance (No. 2) Act, 2024 amended Sections 42 and 43, effective 1 October 2024, so that they do not apply to foreign assets (other than immovable property) whose aggregate value does not exceed ₹20 lakh.

2026: Prosecution provisions

The Finance Act, 2026 extended the same ₹20 lakh threshold to Sections 49 and 50, which provide for prosecution, with retrospective effect from 1 October 2024. The penalty relief came first; the matching prosecution relief followed in 2026.

The threshold is not a blanket exemption from disclosure or from tax. It removes specified non-immovable assets from these particular provisions. Foreign immovable property is outside the relief, and other laws apply independently.

06FAST-DS 2026: particularly relevant to returning NRIs

The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS), introduced through the Finance Act, 2026, gives eligible taxpayers a time-bound route to declare specified foreign assets and income. It came into force on 16 August 2026.

Category 2 is where a returning NRI with legitimate overseas savings should look first. It is designed for exactly this situation: money properly earned abroad that was simply left out of the return after the taxpayer became resident.

The valuation trap

Under the FAST-DS Rules, a foreign bank account is not valued at its closing balance. It is valued at the sum of all deposits made into the account from the date it was opened up to 31 March 2026. Re-deposits of money withdrawn from the same account are excluded, to avoid double counting.

A small closing balance is therefore no guide to eligibility. The deposit history has to be reconstructed before deciding which route, if any, applies.

What a valid declaration gets you, and what it does not

On a valid declaration and full payment, the declarant obtains immunity from further tax, penalty and prosecution under the Black Money Act for the declared asset or income. But completed assessments cannot be revised on the strength of the declaration, and no refund, set-off or other tax benefit is available on amounts declared.

The scheme also excludes two kinds of cases: assets or income representing proceeds of crime where proceedings under the Prevention of Money-laundering Act, 2002 have been initiated or are pending; and any year for which assessment has already been completed under the Black Money Act.

07Can the account legally be kept under FEMA?

Tax law and foreign-exchange law answer different questions.

Under the RBI's framework for foreign currency accounts, a person resident in India may continue to hold a foreign currency account outside India that was opened while they were resident outside India, or that was inherited from a person resident outside India. Returning to India therefore does not, by itself, require every such account to be closed.

But permission to retain the account is distinct from permission for every transaction through it. New credits, remittances from India and third-party operations each need to be examined against the applicable FEMA provisions.

08A practical checklist for returning NRIs

If you returned to India and still hold an overseas bank account:

• Identify every foreign account. Bank accounts, deposits, investment accounts and other foreign assets, including joint accounts and beneficial interests.
• Establish your residential status as NR, RNOR or ROR for each year since return. Do not rely on the date you physically arrived.
• Reconstruct the source of funds. Employment records, salary statements, overseas tax returns and historical bank statements.
• Review the transaction history. Interest credits, unexplained deposits, third-party transfers and anything after your return. For FAST-DS, total the deposits since the account was opened.
• Review past income-tax returns. Check whether Schedule FA and foreign-income disclosures were required and correctly made.
• Examine FEMA compliance for retaining the account and for the transactions through it.
• Secure the account. Update the mobile number and email registered with the bank, enable multi-factor authentication, review authorised users and turn on access alerts. A lapsed overseas mobile number is a security hole. If you no longer need the account, close it and bring the balance home through permitted banking channels.
• Evaluate corrective options on verified facts. FAST-DS 2026 may help in eligible cases, but only if valuation and eligibility are worked out properly first.

09Dormant does not mean compliant

Foreign bank accounts held by returning NRIs are not inherently suspicious. Many hold legitimate savings built over years of overseas work.

But a legitimate balance, an inactive account and a compliant tax position are three different things. An account may have been opened lawfully and funded from honest earnings, yet a later reporting obligation may have been overlooked. Conversely, the existence of an overseas account does not establish tax evasion or money laundering.

The right response is to establish the facts, determine residential status, review the source and movement of funds, secure the account, and comply with the applicable tax and FEMA requirements.