Budget 2026 – Income Tax FAQs on Rationalisation of Penalty and Prosecution

Budget 2026 FAQS on Rationalization of Penalty and Prosecution

I. Combining of assessment order and penalty order

Q. In the present scheme of things how assessment order is passed and penalty is imposed in the Income-tax Act, 2025?

Ans: In the present scheme of things, first an assessment order is passed and based on the findings or additions made in it and subject to the status of appellate proceedings, penalty is initiated in the assessment order by the Assessing Officer. Subsequently, separate penalty proceedings are initiated by giving a show cause notice, which results in passing of a separate penalty order after giving due opportunity to the assessee. This triggers yet another chain of appellate proceedings.

Q. What are the proposed changes in Finance Bill, 2026 with respect to assessment and penalty proceedings?

Ans: It is proposed that where penalty is proposed to be levied under section 439 of the Income-tax Act, 2025, in such cases a common order of assessment and penalty will be passed. However, the assessee will be given adequate opportunity as outlined in the proposed amended sections 474, 411, and 379 of the Income-tax Act, 2025 before passing the composite order.

Q. Whether such proposal would be applicable for all the assessments or penalty proceedings that are pending as on 01.04.2026?

Ans: No. For the Income-tax Act, 1961, the proposed amendment will be applicable where assessment under section 143 or reassessment under section 147 or any draft of the proposed order of assessment under section 144C is made on or after 1st April, 2027, where penalty is proposed to be levied under section 270A.

While for the Income-tax Act, 2025, the proposed amendment will be applicable where any draft of the proposed order of assessment under section 275 is made or assessment under section 270 or reassessment under section 279 is made on or after 1st April, 2027, where penalty is proposed to be levied under section 439.

Q. Whether such proposal would be applicable for draft assessments made under section 144C of the Income-tax Act, 1961?

Ans: Yes. The proposal will be applicable even in cases where any draft of assessment order is required to be made under section 144C of the Income-tax Act, 1961. However, this will be applicable only for those draft assessments which are made on or after 1st April, 2027.

Further, the proposal will also be applicable even in cases where any draft of assessment order is required to be made under section 275 of the Income-tax Act, 2025. However, this will be applicable only for those draft assessments which are made on or after 1st April, 2027.

Q. What will be the effective date for the above proposal in the Income-tax Act, 1961?

Ans: The effective date of the proposed amendments will be 1st April, 2027 for the Income-tax Act, 1961, and the amendments will be applicable where any draft of the proposed order of assessment under section 144C is made, or assessment under section 143, or reassessment under section 147 is made, on or after 1st April, 2027.

Q. What will be the effective date for the above proposal in the Income-tax Act, 2025?

Ans: The effective date of the proposed amendments will be 1st April, 2027 for the Income-tax Act, 2025, and the amendments will be applicable where any draft of the proposed order of assessment under section 275 is made, or assessment under section 270, or reassessment under section 279 is made, on or after 1st April, 2027.

II. Expansion of scope of immunity on levy of penalty or prosecution

Q. What is the current scope for granting of immunity from penalty or prosecution under the provisions of the Income-tax Act, 2025?

Ans: Section 440 of the Income-tax Act, 2025 allows an assessee to seek immunity from the imposition of penalty under section 439 of the Income-tax Act, 2025 and from initiation of prosecution proceedings under sections 478 and 479 of the Income-tax Act, 2025 relating to under-reporting of income, if specified conditions are met.

Q. Who can apply for such immunity?

Ans: Any taxpayer on whose case an assessment or reassessment order has been made under the relevant provisions, and who has paid the tax and interest due within the demand period, and has not filed an appeal against that order, may apply.

Q. What are the conditions for granting immunity under section 440 of the Income-tax Act, 2025?

Ans: The key conditions are:
(a) full payment of tax and interest as per the order within the specified timeframe, or additional tax, as the case may be; and
(b) no appeal is filed against that order.

Q. What is the time limit to file the application for seeking such immunity?

Ans: In order to seek immunity, an application must be filed in the prescribed form and manner within one month from the end of the month in which the assessment or reassessment order is received.

Q. What happens after an application is filed?

Ans: The Assessing Officer shall make a decision within three months from the end of the month in which the application was received. However, depending upon fulfilment or non-fulfilment of the prescribed conditions, the application may be accepted or rejected.

Q. What are the circumstances where immunity is not allowed?

Ans: As per the current provisions, granting of such immunity is not available for cases where penalty proceedings have been initiated for under-reporting in consequence of misreporting of income.

Q. What are the proposed changes in section 440 of the Income-tax Act, 2025 in Finance Bill 2026?

Ans: The scope of granting of immunity under section 440 of the Income-tax Act, 2025 is proposed to be expanded to cover all such cases where penalty proceedings are initiated for under-reporting in consequence of misreporting of income, provided the taxpayer pays an additional income-tax as specified, in lieu of such penalty.

Q. Who will be allowed to apply for granting of immunity as per the proposed changes?

Ans: The proposed expansion of the scope under section 440 of the Income-tax Act, 2025 would cover all cases where penalty proceedings are initiated either for under-reporting income or for under-reporting income in consequence of misreporting. However, the taxpayer would be required to pay an additional income-tax in lieu of penalty, as prescribed, for being eligible for granting immunity for misreporting of income.

III. Conversion of Penalty to fee

Q.1 What are the proposed changes in respect of penalty for non-audit/late of accounts or failure/late furnishing of a statement of financial transaction (SFT) or reportable
account?

Ans: Penalty under section 446 and 454 of the Income-tax Act, 2025 is proposed to be converted into fee.

Q.2 Presently, what is the default covered under Section 446 of the Income-tax Act, 2025?

Ans: Section 446 of the Income-tax Act, 2025 is invoked where a person fails to get accounts audited as required under the Act. The Assessing Officer may impose a penalty under the provisions of the Act, subject to conditions prescribed therein.

Q.3 When is Section 447 of the Income-tax Act, 2025 attracted?

Ans: It applies where a person fails to furnish an accountant’s report required under specified provisions of the Act.

Q.4 Presently, what does Section 454 of the Income-tax Act, 2025 deal with?

Ans: Section 454 of the Income-tax Act, 2025 provides for penalty where a person fails to furnish a statement of financial transaction (SFT) or reportable account. Any reporting entity or person required under the Income-tax Act, 2025 to furnish such statements is liable for penalty on such default.

Q.5 What are the proposed changes in section 446 and 428 of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: Penalty under section 446 of the Income-tax Act, 2025 is proposed to be levied as a fee in lieu of such penalty, by inserting the same in proposed section 428(3) of the Income-tax Act, 2025.

Q.6 What is the fee payable under proposed Section 428(3) of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: The fee is proposed to be a sum of ₹ 75,000 for a delay upto one month for which such failure continues and a sum of ₹ 1,50,000 thereafter.

Q.7 What are the proposed changes in section 447 and 428 of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: Penalty under section 447 of the Income-tax Act, 2025 is converted to a fee, by inserting the same in proposed section 428(4) of the Income-tax Act, 2025.

Q.8 What is the fee payable under proposed Section 428(4) of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: The fee is proposed to be a sum of ₹ 50,000 for a delay upto one month for which such failure continues and a sum of ₹ 1,00,000 thereafter.

Q.9 What are the proposed changes in section 454 and 427 of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: Penalty under section 454(1) of the Income-tax Act, 202 is proposed to be levied as a fee instead of the existing penalty, by inserting the same in proposed section 427(3) of the Income-tax Act, 2025. Further, such fee under section 454(2) of the Income-tax Act, 2025 is also proposed to be capped at ₹ 100000.

Q.10 What is the fee payable under proposed Section 427(3) of the Income-tax Act, 2025 in Finance Bill, 2026?

Ans: The fee is proposed to be a sum of ₹ 200 for every day for which such failure continues and such fee shall not exceed a sum of ₹ 100000.

Q.11 Are the above proposed fee in the Income-tax Act, 2025 in Finance Bill, 2026, will be automatically levied?

Ans: The fees are proposed to be levied automatically.

Q.12 Will the reasonable clause under section 470 of the Income-tax Act, 2025 be available for the levy of fee?

Ans: No. As the fee is proposed to be charged automatically, the need for reasonable clause is not required.

IV. Partial Decriminalisation of Certain Prosecution Provisions of Income-tax Act, 2025

Q.1 Which provisions of Income-tax Act, 2025 related to prosecutions are being amended via Finance Bill 2026?

Ans: Section 475 to 478 & 494 of Income-tax Act, 2025 are being amended to partially decriminalise certain offences, fully decriminalise certain offences and change the nature and period of punishment prescribed therein.

Q.2 What is the broad philosophy that has been followed for decriminalisation of various offences?

Ans: Amendments made in prosecution provisions is part of continued exercise of decriminalisation followed by Department over the years to make the Income-tax Act, 2025 less decriminalised and make the punishment for the offences proportionate to the crimes. The principles that are followed in this exercise are as follows:

i) nature of punishment is changed from rigorous imprisonment to simple imprisonment;
ii) maximum punishment is proposed to be limited to 2 years;
iii) new grading of offences and its corresponding new punishment is proposed wherever punishment of offences is based on grading of amount of tax evaded;
iv) if amount of tax evaded does not exceeds ten lakh rupees, punishment of only fine is proposed;
v) Imposition of fine is introduced in lieu of or in addition of imprisonment;
vi) certain offences are fully decriminalized.

Q.3 What are the changes proposed regarding maximum punishment for offences under Income-tax Act, 2025?

Ans: The maximum punishment for any offences is brought down from its current 7 years to 2 years and punishment for subsequent offences has been brought down from its current 7 years to 3 years.

Q.4 What changes are carried out in grading (amount of tax) based punishment for offences in Income-tax Act, 2025?

Ans: The earlier grading of Rs 25 lakhs has been changed to new grading. Now, the punishment for offences in case amount of tax involved exceeds 50 lakhs rupees, shall be maximum 2 years; punishment in case amount of tax involved exceeds 10 lakhs rupees but does not exceed 50 lakhs rupees shall be maximum 6 months; and punishment in case amount of tax involved does not exceeds 10 lakhs rupees shall be only fine.

Q.5 What is the rationale of new grading of amount of tax?

Ans: The rationale of the grading is to rationalize the extent of punishment so as to persuade compliance. While prosecution leading to imprisonment as a punishment has been kept for offences involving deliberate disobedience and high tax evasion, the punishment has been kept monetary where the default is of lower value. New grading system is progressive and inclusive in nature and keeping in view global practice as well as the spirit of Jan Viswas.

Q.6 What changes are being carried out related to nature of punishment and fines in prosecution provisions in Income-tax Act, 2025?

Ans: The nature of punishment has been changed from rigorous punishment to simple imprisonment in section 475 to 478 & 494 of Income-tax Act, 2025. In case of certain offences, Imposition of fine is introduced in lieu of or in addition of imprisonment.

Q.7 What shall be the date of implementation of amendments in prosecution provisions in Income-tax Act, 2025

Ans: Amendments made in prosecution provisions under section 473 to 485 & 490 of the Income-tax Act, 2025 shall be effective from 1st April, 2026.

Q.8 What happens to the prosecution provisions of Income-tax Act, 1961 after Income-tax Act 2025 implemented from 01.04.2026?

Ans: Similar amendments in prosecution provisions, made in Income-tax Act, 2025 are also being carried out in corresponding provisions i.e. section 275A to 278A & 280 of Income-tax Act, 1961.

Q.9 What is the punishment for non-payment of TDS/TCS to the Government?

Ans: The maximum punishment for non-payment of TDS/TCS after amendments shall be 2 years and the minimum punishment shall be fine.

Q.10 What offences under Income-tax Act, 2025 are fully decriminalised?

Ans:
(a) Offence wherein a person fails to produce the accounts and documents as referred in section 481 of Income-tax Act, 2025 is fully decriminalised.

(b) If a person fails to pay the tax deducted at source or ensure the payment of such tax, in case of winnings from Lottery or crossword puzzle etc as required under section 476(1)(b)(i) of the Income-tax Act, 2025 and if a person fails to pay and ensure payment of tax deducted at source in case of benefits or perquisite under section 476(1)(b)(ii) of the Income-tax Act, 2025 then the punishment for these offences is rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. These offences are proposed to be fully decriminalized.

(c) In similar manner, if a person fails to pay tax deducted at source or ensure payment of tax in case of winnings from online games under section 476(1)(b)(i) of the Income-tax Act, 2025 and consideration from virtual digital asset under section 476(1)(b)(ii) of the Income-tax Act, 2025 then these offences attract punishment of rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. In these cases, winnings from online games and consideration from virtual digital asset which are wholly in kind are also proposed to be excluded from criminal liability related to prosecution in case of failure to pay tax or ensure payment of tax.

Q.11 Will compounding be continued to be available for all offences?

Ans: Yes, there is no change in compounding of offences.

V. Rationalization of tax rate and penalty on certain income

Q.1 Please explain the scope of Section 195 of the Income-tax Act, 2025?

Ans: Section 195 of the Income-tax Act, 2025 (hereinafter referred as ‘the Act’) provides for tax on income referred to in section 102 to 106 of the Income-tax Act, 2025 such as unexplained credits, unexplained investments, unexplained assets or unexplained expenditure and amount borrowed or repaid through hundi, etc. Under the current position, the tax rate applicable on such income is at the rate of 60%.

Q.2 What is the scope of penalty under section 443 of the Income-tax Act, 2025?

Ans: Section 443 of the Income-tax Act, 2025 provides that, penalty amounting to 10% of the tax payable under section 195(1)(i) of the Income-tax Act, 2025, on an assessee if the income determined in his case for any tax year includes any income referred to in section 102, 103, 104, 105 or 106.

Q.3 What does section 439 of the Income-tax Act, 2025 deal with?

Ans: Further, section 439 of the Income-tax Act, 2025 provides the penalty for under-reporting and misreporting of income.

Q.4 What are the proposed changes in the tax rate under section 195 of the Income-tax Act, 2025 in Finance Bill, 2026.

Ans: The tax rate on income reported by the taxpayer or determined by Assessing Officer in respect of income referred to in section 102 to 106 of the Income-tax Act, 2025 like unexplained credits, unexplained investment etc is reduced from 60 percent to 30 percent.

Q.5 What are the proposed changes with respect to penalty provision on certain income under section 443 of the Income-tax Act, 2025?

Ans: As the tax rate on certain income is rationalized to 30 percent, therefore the penalty under section 443 of the Income-tax Act, 2025 is proposed to be subsumed in the penalty for misreporting under section 439.

Q.6 Whether penalty under section 439 of the Income-tax Act, 2025 be imposable in respect of income under section 102–106 of the Income-tax Act, 2025, if the taxpayer has suo-moto shown in the ITR?

Ans: No, in such case no penalty shall be levied.

Q.7 In case the taxpayer subsequent to determination of Income under section 102–106 of the Income-tax Act, 2025 by the assessing officer, wishes to settle, the dispute then what will be the additional-tax?

Ans: In such case, additional income-tax amounting to one hundred and twenty percent of the amount of tax payable on under-reported income.

Q.8 Now that penalty on certain income is proposed to be imposed under misreporting, whether the assessee will be eligible to make an application for immunity.

Ans: Yes, assessee will be eligible to make an application for immunity from prosecution and waiver of penalty, subject to the conditions specified therein.

VI. Rationalisation of block period and reference point of search assessment

Q.1 What is section 295 of the Income-tax Act, 2025?

Ans: Section 295 of the Income-tax Act, 2025 (hereinafter referred as ‘the Act’) provides for taxing undisclosed income where Assessing officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person in whose case search is not initiated or requisition is not made (hereinafter referred to as the ‘other person’).

Q.2 How is block period is defined and in what section?

Ans: Block period is defined in section 301(a) of the Income-tax Act, 2025. The block period consists of the combined period of six tax years before the tax year in which a search/requisition is made, plus the period from the start of the tax year of the search up to the execution of the last authorisation.

Q.3 What are the proposed changes in section 295 of the Income-tax Act, 2025 in the Finance Bill 2026?

Ans: It is proposed to limit the period of block in case of non-search person, where undisclosed income pertains to only one tax year. Following will be the definition of the block period where the undisclosed income in case of other person belongs to:

i) either year of search or tax year immediately preceding the year of search: then the period of block will be tax year immediately preceding the year of search or requisition and from starting from 1st April of the searched year and ending on the date of initiation of search or making of requisition.

ii) any one year except the year immediately preceding the year in which search was initiated or requisition was made: comprise of only that single tax year.

iii) multiple years: then the block period will comprise of 6 tax years preceding the tax year in which search was initiated or any requisition was made and the period starting from 1st April of the searched year and ending on the date of execution of last of the authorisations for such search or such requisition.

Q.4 What is section 296 of the Income-tax Act, 2025?

Ans: Section 296 of the Income-tax Act, 2025 provides for time limit for completing a block assessment. An assessment or reassessment order under Section 294 of the Income-tax Act, 2025 (procedure for block assessment) must be completed within 12 months from the end of the quarter in which the last search authorization was executed or requisition was made.

Q.5 What are the proposed changes in section 296 of the Income-tax Act, 2025 is Finance Bill, 2026?

Ans: Section 296 of the Income-tax Act, 2025 is proposed to be amended so as to take the date of initiation of search as the reference point to decide the date of limitation for block assessment and consequently, the period of twelve months is proposed to be to eighteen months.

VII. Updated Return

Q.1 What is an “Updated Return” under the Income-tax Act, 2025?

Ans: Section 263(6) of the Income-tax Act, 2025 provides for furnishing of an updated return of income. An updated return is a return that may be furnished by a person, whether or not a original, revised, or belated return has been earlier furnished, to voluntarily disclose any income that was not reported or was inaccurately reported before, as long as certain conditions specified in the Income-tax Act, 2025 are met.

Q.2 Who can furnish an Updated Return and within what time limit?

Ans: Any person may furnish an updated return of income or income of any other person for whom he is assessable, within forty-eight months from the end of the financial year succeeding the relevant tax year, as provided under section 263(6)(a) of the Income-tax Act, 2025. Such return may be furnished even if no original, belated or revised return was filed earlier, subject to the exclusions specified in section 263 of the Income-tax Act, 2025.

Q.3 What additional tax is payable while furnishing an Updated Return?

Ans: In addition to tax and interest payable under the Act, an assessee furnishing an updated return is required to pay additional income-tax on additional income disclosed in the updated ITR when compared with the corresponding income in original, revised or belated ITR at the following rates:

• 25% of aggregate tax and interest, if the updated return is furnished after the due date of filing the revised ITR and within 12 months of the end of the financial year following the corresponding tax year;
• 50%, if furnished after 12 months but before 24 months of the period indicated above;
• 60%, if furnished after 24 months but before 36 months of the period indicated above;
• 70%, if furnished after 36 months but before 48 months of the period indicated above.

Q.4 What are the provisions relating to updation of income in respect of the updated return?

Ans: Section 263(6)(b) of the Income-tax Act, 2025 provides that taxpayers may file the updated return in such cases where original return filed under section 263(1) of the Income-tax Act, 2025 shows a loss, and updated return being filed thereafter, shows income. However, section 263(6)(c)(i) of the Income-tax Act, 2025 restricts filing of updated return when the updated return is a return of loss for the said tax year. Therefore, presently the updated ITR cannot be filed if the earlier ITR is a return of loss and the loss is proposed to be reduced through filing of updated ITR.

Q.5 What are the proposed changes in the budget, 2026 in respect of the scope of filing of the updated return?

Ans: An amendment is proposed in Section 263 of the Income-tax Act, 2025 to allow taxpayers to file an updated return in cases where they reduce the amount of loss compared to the loss claimed in the original return filed by the specified due date.

Q.6 What are the proposed changes in the budget, 2026 for filing the updated return in response of notice of reassessment issued under section 280 of the Income-tax Act, 2025?

Ans: Section 263(6)(c)(v) of the Income-tax Act, 2025 prohibits filing of an updated return in cases where any proceedings for assessment, reassessment, recomputation, or revision of income are pending or have been completed for the tax year in question.

In this regard, amendment is proposed so as to allow filing of an updated return also in such cases where reassessment proceeding have been initiated for the relevant tax year in pursuance of a notice issued under section 280 of the Income-tax Act, 2025. Such updated return is required to be filed within such period as specified in the said notice. Consequent to filing such return, no penalty shall be imposed in respect of income reported in such updated ITR.

Q.7 What is the additional amount to be paid in the case of updated return filed in response of notice issued under section 280 of the Income-tax Act, 2025?

Ans: Where an updated return is filed in pursuance of a notice issued under section 280, the additional income-tax payable shall be increased by a further sum of 10 % of the aggregate of tax and interest payable. i.e. total additional income-tax shall be:

• 35% (25% + 10%) of aggregate of tax and interest, if the updated return is furnished within 12 months;
• 60% (50% + 10%) if furnished after 12 months but before 24 months;
• 70% (60% + 10%) if furnished after 24 months but before 36 months;
• 80% (70% + 10%) if furnished after 36 months but before 48 months,

from the end of the financial year succeeding the relevant tax year.

Q.8 Whether reassessment proceedings be abated upon filing of an updated return?

Ans: No. The reassessment proceedings will not be abated upon filing of updated return. However, no penalty of under-reporting or misreporting of income will be imposed on such income which have been disclosed in the updated return filed in response of notice issued under section 280 of the Income-tax Act, 2025.

Q.9 When can someone file the updated return for reducing the loss and updated return in response of notice of reassessment issued under section 280 of the Income-tax Act, 2025?

Ans: The updated return in these cases may be filed after the enactment of the Finance Act, 2026.

Q.10 Will there be a requirement to make any payment or any fee?

Ans: There is no fee prescribed for filing of update return. Thus, no additional fee is required to be made for filing of updated return in the case of expanded scope.

VIII. Black Money Act – Rationalisation of Prosecution (section 49 and 50 of Black Money
Act)

Q.1 Under the Black Money Act, what are the provisions for penalty for non-disclosure of foreign assets?

Ans: Under the existing provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,

• Penalty under sections 42 and 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 may be levied where a resident willfully fails to furnish a return of income or willfully omits to disclose foreign income or assets (other than immovable property), where the total value of such assets exceed Rs 20 Lakhs.

• Prosecution under sections 49 and 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 may be initiated where a resident willfully fails to furnish a return of income or willfully omits to disclose foreign income or assets, irrespective of the value of such asset.

Q.2 What changes are being made under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015?

Ans: Sections 49 and 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 have been amended to provide that prosecution under these sections will not be initiated where the total value of such assets (other than immovable property) does not exceed Rs 20 Lakhs.

Q.3 Does the amendment apply to immovable property?

Ans: No, the exclusion from prosecution does not apply to immovable property. Prosecution under sections 49 and 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 shall continue to apply in respect of non-disclosure of foreign immovable property, irrespective of its value.

Q.4 How shall the monetary threshold of Rs 20 Lakhs be computed for the purpose of these provisions?

Ans: The threshold of Rs 20 lakhs shall be computed by aggregating the value of all foreign assets held by the assessee, other than immovable property.

Q.5 If a person owns land overseas of Rs 12 lakhs, shares in an overseas company of Rs 5 Lakhs and a Bank account with balance of Rs 10 Lakhs, will the penalty and prosecution provisions be applicable on these assets for non-disclosure?

Ans: In the case of land, since it is an immovable property, non-disclosure of such asset is liable to penalty and prosecution even though it is less than Rs 20 Lakhs. In the case of Bank account and shares, since the total value is less than Rs 20 lakhs, the provisions of penalty and prosecution will not be attracted.

Q.6 From which date shall the amended provisions apply?

Ans: These amendments shall take effect retrospectively from the 1st day of October, 2024, i.e. from the date when the amendments in the penalty provisions (sections 42 & 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015) were brought into the statute, subject to the above-mentioned monetary threshold.

IX. Increasing threshold of penalty to be imposed under section 466

Q.1 What does Section 466 of the Income-tax Act, 2025 deal with?

Ans: Section 466 of the Income-tax Act, 2025 provides for the imposition of a penalty if a person fails to comply with the provisions of Section 254 of the Income-tax Act, 2025 relating to collection of certain information.

Q.2 What is the maximum amount of penalty that can be imposed under this section at present?

Ans: The penalty imposable under Section 466 of the Income-tax Act, 2025 may extend up to ₹1,000.

Q.3 Who can impose the penalty?

Ans: The penalty may be imposed by the Joint Commissioner, Deputy Director, Assistant Director, or the Assessing Officer.

Q.4 What are the proposed changes in section 466 of the Income-tax Act, 2025 in finance Bill 2026?

Ans: It is proposed to increase the maximum amount of penalty under section 466 of the Income-tax Act, 2025 from ₹1,000 to ₹25,000.

X. Imposition of penalty for non-furnishing or inaccurate furnishing of information on
transactions of crypto-assets under section 446 of the Income-tax Act, 2025

Q.1 What are the provisions related to reporting of transaction in respect of crypto assets?

Ans: Section 509 of the Income-tax Act, 2025 provides that prescribed reporting entity shall have the obligation to furnish statement of transactions in respect of crypto assets within prescribed time.

Q.2 Is there any penal mechanism to ensure that the Reporting Entity furnishes accurate and timely information in the statement of transactions in crypto assets?

Ans: No. There is no penal provision in the Income-tax Act, 2025 to ensure accurate and timely information in such statement.

Q.3 What change is being proposed in Finance Bill 2026?

Ans: A new penalty section is proposed to be inserted in the Income-tax Act, 2025 for failure to furnish statement (Rs 200 per day for which the failure continues) and for furnishing inaccurate information (Rs. 50000) in a statement on transaction of crypto-asset under section 509 of the Income-tax Act, 2025.

Q.4 Why is the penalty provision proposed to be introduced?

Ans: It is proposed to be introduced to ensure compliance on part of the respective Reporting Entities as regards furnishing of statement and refraining them from furnishing inaccurate information in a statement.

Q.5 From which date will the above amendment be effective?

Ans: The amendments are proposed to be made effective from 1st April, 2026.