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Informist, Sunday, Feb. 1, 2026

 

--BUDGET: To integrate assessment, penalty proceedings

 

NEW DELHI – In a measure to reduce litigation and help taxpayers, the Union Budget for 2026-27 (Apr-Mar) allowed the taxpayers to update their returns even after reassessment proceedings have been initiated at an additional 10% tax rate over and above the rate applicable for the relevant year. The assessing officer will use the updated return in proceedings, Finance Minister Nirmala Sitharaman said, presenting the Budget in the Lok Sabha.

 

The government said that taxpayers will be allowed to file updated returns in cases where taxpayers reduce the amount of loss filed in the original return under section 263(1) of the Income Tax Act, 1961. Where the taxpayer filed an updated return and reports additional income, then the penalty shall not be leviable on such additional income, the government said.

 

The Budget has extended immunity from penalties and prosecution to cases of income misreporting. There is already a framework for immunity from penalty and prosecution in the cases of underreporting. However, in such cases, the taxpayer will need to pay 100% of the tax amount as additional income tax over and above the tax and interest due, the government said. The misreporting of income with respect to unexplained cash credit is proposed to be settled with a payment of 120% of the tax. In such cases, immunity shall not be granted where prosecution is initiated, the government said.

 

Presently, there is a special tax rate on certain incomes in the nature of cash credits and unexplained investments, where the tax rate is 60% and the penalty is 10% of the tax. The government has decided to rationalise the tax rate on these incomes to 30%. Penalty on such an amount would be merged with the penalty for underreporting of income in consequence of misreporting of income, which is 200% of the tax amount, the government said.

 

Further, the government has integrated assessment and penalty proceedings through a common order to reduce the multiplicity of proceedings. There will be no interest liability on the taxpayer for the penalty amount during the period of appeal before the first appellate authority, irrespective of the outcome of the appeal, the government said. The quantum of pre-payment has been reduced from 20% to 10% and will continue to be calculated only on the core tax demand, the government said.

 

Penalties for certain technical defaults, such as failure to get accounts audited, non-furnishing of the transfer pricing audit report, and default in furnishing the financial transactions statement, are proposed to be converted into a fee, the government said.  End

 

Reported by Surya Tripathi

Edited by Saji George Titus

 

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