The Finance Bill 2025 proposes amendments to Section 275 of the Income-tax Act to standardize the time limit for imposing penalties. Currently, different deadlines exist based on whether a case is in appeal before the ITAT, JCIT(Appeal), or Commissioner (Appeal), making it challenging to track multiple time-barred dates. The amendment proposes that any penalty order under Chapter XXI must be issued within six months from the end of the quarter in which the connected proceedings conclude, an appellate order is received, a revision order is passed, or a penalty notice is issued. Additionally, Section 246A is updated to align with this revision, allowing appeals against penalties imposed under the new timeline. These changes simplify tax administration and ensure uniformity in penalty imposition. The amendments take effect from April 1, 2025.
Budget 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 imposition of penalties in various cases e.g. where a case is in appeal before the ITAT, time limit to impose penalty is end of the financial year in which the connected proceeding has been completed or six months from end of the month in which the appellate order is received, whichever is later. Similarly, different time-limits for 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.
2. 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.
3. These amendments will take effect from the 1st day of April, 2025.
[Clauses 69 & 83]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 69 of the Bill seeks to amend section 246A of the Income-tax Act relating to appealable orders before Commissioner (Appeals).
Clause (ja) of sub-section (1) of the said section provides that an order of imposing or enhancing penalty under sub-section (1A) of section 275 may be appealed before the Commissioner (Appeals).
It is proposed to amend the said clause so as to provide that an order of imposing or enhancing penalty under sub-section (2) of section 275 may be appealed before the Commissioner (Appeals).
It is also proposed to consequentially amend clause (n) of sub-section (1) of the said section so as to omit the words “made by a Deputy Commissioner”.
These amendments will take effect from 1st April, 2025.
Clause 83 of the Bill seeks to substitute section 275 of the Income-tax Act, relating to bar of limitation for imposing penalties.
The proposed section, inter alia, 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.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
69. Amendment of section 246A.
In section 246A of the Income-tax Act, in sub-section (1),––
(i) in clause (ja), for the word, brackets, figure and letter, “sub-section (1A)”, the word, brackets and figure, “subsection (2)” shall be substituted;
(ii) in clause (n), the words “made by a Deputy Commissioner” shall be omitted.
83. Substitution of new section for section 275.
For section 275 of the Income-tax Act, the following section shall be substituted, namely:––
“275. (1) No order imposing a penalty under this Chapter shall be passed after the expiry of six months from the end of the quarter in which,—
(a) the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, if the relevant assessment or other order is not the subject matter of an appeal under section 246 or section 246A or section 253;
(b) the order of revision under section 263 or section 264 is passed, if the relevant assessment or other order is the subject matter of revision under the said sections;
(c) the order of appeal under section 246 or section 246A is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said sections and no further appeal has been filed under section 253;
(d) the order of appeal under section 253 is received by the jurisdictional Principal Commissioner or Commissioner, if the relevant assessment or other order is the subject matter of an appeal under the said section;
(e) notice for imposition of penalty is issued, in any other case.
(2) The order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be revised on the basis of assessment as revised by giving effect to the order passed under section 246 or section 246A or section 253 or section 260A or section 261 or revision under section 263 or section 264, where the relevant assessment or other order is the subject matter of an appeal or a revision under the said sections.
(3) No order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty under sub-section (2) shall be passed—
(a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard;
(b) after the expiry of six months from the end of the quarter in which the order passed under section 246 or section 246A or section 253 or section 260A or section 261 is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision under section 263 or section 264 is passed.
(4) The provisions of sub-section (2) of section 274 shall apply to the order imposing or enhancing or reducing penalty under sub-section (2).
(5) In computing the period of limitation for the purposes of this section, the following period shall be excluded:—
(a) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129;
(b) the period commencing on the date on which stay on proceeding for levy of penalty was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner.”.
