The Finance Bill, 2026 proposes to rationalise the block assessment regime for “other persons” where undisclosed income is found to belong to a third party who was not subjected to search or requisition. Under existing law, such persons are required to undergo the same block period as the searched person, even when the incriminating material relates to only a single tax year, leading to disproportionate compliance burden. To address this, section 295 is proposed to be amended to limit the block period for third parties based on the actual span of undisclosed income. Where the income pertains only to the tax year immediately preceding the year of search, the block will be confined to that year and the period up to the date of search. Where it relates to only one tax year among the preceding five years, the block will cover only that single year. Consequentially, section 296 is amended to align limitation periods by computing the assessment time limit from the date of search, extending it to eighteen months. These amendments apply from 1 April 2026.
Rationalizing the period of block in case of other persons
Section 295 of the Act, provides, inter-alia, that where Assessing officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person (herein after referred to as the ‘other person’), other than the person (herein after referred to as the ‘specified person’) with respect to whom search was initiated under section 247 or requisition was made under section 248, then –
a. any money, bullion, jewellery, virtual digital asset or other valuable article or thing or any books of account or other documents seized or requisitioned or any other material or information relating to the aforesaid undisclosed income will be handed over to the Assessing Officer having jurisdiction over such other person; and
b. Assessing Officer of the other person shall proceed under section 294 against such other person and the provisions of this section will apply accordingly.
2. Furthermore, in the existing provisions of Block assessment, the block period is same for the specified person or other person.
3. In this regard, it has been considered that where undisclosed income pertaining to a third person relates only to a single tax year, the third person is nonetheless required to undergo the full block assessment procedure, resulting in an increased compliance burden on a person against whom no search or requisition was initiated.
4. Accordingly, it is proposed to amend the section 295(2) of the Act so as to limit the period of block in case of third party
5. This amendment will take effect from the 1st day of April, 2026, for search or requisition is initiated or made as the case maybe, on or after 1st day of April, 2026.
[Clause 64]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 64 of the Bill seeks to amend section 295 of the Income-tax Act, 2025 relating to undisclosed income of any other person.
The said section provides for taxing undisclosed income where the 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.
It is proposed to amend sub-section (2) of the said section so as to limit the period of block assessment in case of third party where incriminating material has bearing on the undisclosed income of only a single tax year immediately preceding the tax year in which search is initiated or requisition is made.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 65 of the Bill seeks to amend section 296 of the Income-tax Act, 2025 relating to time-limit for completion of block assessment.
Section 296 of the Act, provides for time-limit for completing a block assessment. An assessment or reassessment order under section 294 (procedure for block assessment) must be completed within twelve months from the end of the quarter in which the last search authorization was executed or requisition was made. While, the time-limit for completion of block assessment of any other person shall be twelve months from the end of the quarter in which the notice under section 294 in pursuance of section 295, was issued to such other person.
It is proposed to amend the said section 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 from the end of the quarter in which search was initiated or requisition was made.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 66 of the Bill seeks to amend section 332 of the Income-tax Act, 2025 relating to application for registration.
It is proposed to amend clause (f) of sub-section (1) of the said section to give reference of “Schedule VII [Table : S. Nos. 17 to 19]”.
This amendment will take effect from 1st April, 2026.
Clause 67 of the Bill seeks to amend section 349 of the Income-tax Act, 2025 relating to return of income under Chapter XVII.
It is proposed to amend the said section so as to provide the reference of section 263(4) therein.
This amendment will take effect from 1st April, 2026.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
64. Amendment of section 295.
In section 295 of the Income-tax Act, in sub-section (2), after clause (b), the following clauses shall be inserted, namely:––
“(c) where the undisclosed income of the other person pertains only to the period––
(i) commencing from the tax year (herein referred to as the specified year) immediately preceding the year of initiation of search or requisition; and
(ii) ending on the date of initiation of search or making of requisition,
then irrespective of the provisions of section 301(a), the block period in respect of such other person shall comprise of the specified year and the period starting from the 1st April of the tax year in which search was initiated or requisition was made and ending on the date of the execution of the last of the authorisations for such search or such requisition;
(d) where the undisclosed income of the other person pertains to a single tax year out of the five tax years preceding the specified year, then irrespective of the provisions of section 301(a), the block period in respect of such other person shall comprise of only that single tax year.”.
