Section 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 3 is the charging section. It says tax is charged on the total undisclosed foreign income and asset of the previous year at a fixed rate, and it has a proviso that fixes the year in which an undisclosed foreign asset is taxed. This article reads it as the Act as enacted and published in the Gazette of India on 27 May 2015 prints it.
For every assessment year commencing on or after 1 April 2016, tax is charged on every assessee on his total undisclosed foreign income and asset of the previous year at thirty per cent. as enacted. An undisclosed asset located outside India is charged on its value in the previous year in which it comes to the notice of the Assessing Officer. The value is the fair market value, determined in the manner prescribed.
Sub-section (1): who is charged, for what, and at what rate
Section 3(1) reads, in substance: there shall be charged on every assessee for every assessment year commencing on or after the 1st day of April, 2016, subject to the provisions of this Act, a tax in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent. of such undisclosed income and asset.
Break the sentence into its parts.
| Phrase in section 3(1) | What it means for a reader |
|---|---|
| "every assessee" | A resident other than not ordinarily resident, as section 2(2) defines the term |
| "every assessment year commencing on or after the 1st day of April, 2016" | The charge starts with the assessment year that begins on that date |
| "subject to the provisions of this Act" | Other sections of the Act, including those on scope and computation, shape the amount |
| "total undisclosed foreign income and asset of the previous year" | The figure that sections 4 and 5 build |
| "at the rate of thirty per cent." | One flat rate, as enacted |
If you are working out how this charge relates to your own return, our income tax return filing team can go through it with you. Two points deserve emphasis. First, the Act as enacted prints a single rate: thirty per cent. There is no slab in the section. Second, the charge is on the "total undisclosed foreign income and asset", a phrase section 2(12) defines by pointing to sections 4 and 5. The scope is in section 4 and the computation is in section 5.
On commencement, section 3(1) itself prints 1 April 2016 as the starting assessment year. How that date sits beside the declaration window in Chapter VI is explained in our article on section 1; this article gives no other date.
The proviso: the year an undisclosed asset is taxed
The proviso says "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."
This changes the question for assets. The charge in the main part of the sub-section is on the undisclosed foreign income and asset "of the previous year". For an asset, the proviso names the relevant previous year: the one in which the asset comes to the notice of the Assessing Officer, and the value is taken for that year. The proviso does not say what amounts to "coming to the notice", and this article does not add a rule. The section is silent on it.
The consequence is practical. An asset bought years ago is not tested at its cost. The charge is on its value in the previous year of notice. Section 5(2) then works out, for immovable property, how income already assessed can reduce that value, and the Act's illustration there is discussed in our article on section 5.
Sub-section (2): value is fair market value, as prescribed
Section 3(2) says that, for this section, "value of an undisclosed asset" means the fair market value of an asset (including financial interest in any entity) determined in such manner as may be prescribed. The Act itself therefore does not give a formula. The manner of working out fair market value is left to rules, and the Rules of 2015, as notified on 2 July 2015, deal with it in rule 3. Our two articles on rule 3 take the asset types in turn: bullion, art, property and bank accounts and shares, securities and interest in a firm. Section 2(14) points back here, so the two provisions work as a pair.
A simple example
Karan Malhotra is a resident other than not ordinarily resident. A foreign-listed holding in his name comes to the notice of the Assessing Officer in a previous year. The fair market value of the holding for that year, determined in the prescribed manner, is fifty lakh rupees. If nothing else adjusts the figure, the charge under section 3(1) at thirty per cent. as enacted is fifteen lakh rupees of tax on that value. The example is arithmetic on the printed rate only: the Act has further provisions on computation, interest and penalty, and none is computed here.
How section 3 connects to what follows
- Section 4 says what the total is made of: foreign income not disclosed in the return, foreign income for which no return was filed, and the value of an undisclosed asset.
- Section 5 says what may and may not be deducted.
- Section 10 provides for assessment, and section 41 provides a separate penalty computed by reference to the tax.
- Section 40 applies interest provisions of the Income-tax Act named there.
If you hold a foreign asset that has never been reported in a return, the starting point is a clear list of the asset, its source of funds and its value.
Need help with foreign assets and your return?
If an overseas asset, bank account or foreign income has not been fully reflected in your income-tax return, speak to us about where you stand. We can help you review the facts and your filing position through our income tax return filing service.
Key takeaways
- The Act as enacted charges thirty per cent. on total undisclosed foreign income and asset of the previous year.
- The charge applies to every assessee for assessment years commencing on or after 1 April 2016, as printed.
- An undisclosed foreign asset is charged on its value in the previous year in which it comes to the notice of the Assessing Officer.
- The value is the fair market value determined in the manner prescribed; the Act leaves the method to rules.
- The section is silent on what amounts to "coming to the notice".
- Later Finance Act amendments to section 3 must be checked before acting. References to the Income-tax Act, 1961 are as printed in 2015; check the corresponding provision of the current income-tax law.
Read next
- Section 2: definitions of assessee and undisclosed asset
- Section 4: scope of total undisclosed foreign income and asset
- Section 5: computation of total undisclosed foreign income and asset
- Black Money Act: undisclosed foreign income, an overview
Disclaimer: Based on the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 as enacted and published in the Gazette of India on 27 May 2015, and on the Rules of 2015 as notified on 2 July 2015, as consulted on 2 October 2026. Later Finance Act amendments, amendment rules and the current income-tax law should be checked. This article is general information, not legal advice; check the official text before acting.