Time limit to impose penalties in Income Tax is rationalised by Finance Bill, 2025,
The Finance Bill, 2025, proposes several key changes in the Income Tax Act, 1961, to continue reforms in the direct tax system through tax reliefs, removing difficulties faced by taxpayers, and rationalizing1 various provisions. Here are some of the key changes:
Time limit to impose penalties rationalised
Multiple timelines: Currently, there are multiple timelines for imposing penalties under Section 275 of the Income Tax Act, which can be difficult to track.
Unified timeline: The Bill proposes a unified timeline of six months from the end of the quarter in which the relevant proceedings are completed or the order is received.
Consequential amendment: A consequential amendment is proposed to Section 246A to reflect the changes in Section 275.
Effective date: These amendments will take effect from April 1, 2025.
Time limit to impose penalties rationalised
The existing provisions of section 275 of the Act, inter-alia, provide for the bar of limitation for imposing penalties. Section 275 of the Act is having multiple timelines for the imposition of penalties in various cases e.g. where a case is in appeal before the ITAT, the time limit to impose penalty is the end of the financial year in which the connected proceeding has been completed or six months from the end of the month in which the appellate order is received, whichever is later. Similarly, different time-limits for the imposition of penalty have been provided for cases in appeal to the JCIT(Appeal) or Commissioner (Appeal). This makes it difficult to keep track of multiple time barring dates for effective and efficient tax administration.
In view of the foregoing, it proposed to amend section 275 of the Act to provide that any order imposing a penalty under Chapter XXI shall not be passed after the expiry of six months from the end of the quarter in which the connected proceedings are completed, or the order of appeal is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case maybe. Consequential amendment is also proposed in section 246A of the Act to update reference of the amended section 275 of the Act.
These amendments will take effect from the 1st day of April, 2025.