The Finance Bill, 2026 proposes to broaden the immunity framework under section 270AA by extending relief to cases where under-reporting of income arises due to misreporting. Currently, immunity from penalty and prosecution is available only for under-reporting, subject to payment of tax and interest and non-filing of appeal. The amendment allows taxpayers facing misreporting-related penalties to seek immunity by paying the due tax and interest along with additional income-tax equal to 100% of the tax payable on the under-reported income, in lieu of penalty. Upon meeting these conditions and after the appeal window expires, the Assessing Officer may grant immunity from penalty under section 270A and prosecution under sections 276C and 276CC. However, immunity will not be available where proceedings under Chapter XXII have been initiated. The change is intended to facilitate early dispute resolution, reduce litigation, and provide a clear settlement pathway while preserving deterrence through an additional tax. The amendment takes effect retrospectively from 1 March 2026, applicable from AY 2026–27 and earlier years.
Expanding the scope of immunity from imposition of penalty or prosecution under section 270AA-
Section 270AA of the Act, provides, inter-alia, procedure of granting immunity by the Assessing Officer from imposition of penalty or prosecution, if assessee fulfils the following conditions, namely: –
a. the tax and interest payable as per Assessment order, has been paid within the period specified in notice of demand;
b. no appeal against the such assessment order has been filed.
2. Further, sub-section (2) provides that assessee shall file an application within one month from the end of the month in which said assessment order has been received by him. Furthermore, sub-section (3) provides that assessing officer shall, subject to the fulfilment of the aforementioned conditions, and after the expiry of the period of filing the appeal, grant the immunity from imposition of penalty under section 270A and initiation of prosecution proceedings under section 276C or section 276CC. Further, sub-section (4) provides that Assessing Officer shall pass an order accepting or rejecting the application, within a period of three months from the end of the month in which the application for requesting immunity is received.
3. Presently, immunity under section 270AA can only be granted in the cases of underreporting of income and not in the case of under-reporting of income in consequence of misreporting. However, the taxpayer is required to pay an additional income-tax to the extent of 100% of the amount of tax payable on such income in lieu of the penalty.
4. In this regard, it is considered that provision of immunity should also be extended to such cases where under-reporting of income is in consequence of misreporting.
5. In view of the same, it is proposed to amend the section 270AA of the Act so as to extend the scope of immunity to such cases where penalty is initiated for under-reporting of income in consequence of misreporting.
6. This amendment will take effect from the 1st day of March, 2026 for AY 2026-27 or any earlier Assessment years.
[Clause 15]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 15 of the Bill seeks to amend section 270AA of the Income-tax Act, 1961 relating to immunity from imposition of penalty, etc.
The said section, inter alia, provides the procedure for granting immunity by the Assessing Officer from imposition of penalty or initiation of prosecution, if assessee fulfils certain conditions, specified therein.
Under the said section immunity is granted only in the cases of under-reporting of income and not in the case of under-reporting of income in consequence of misreporting.
It is proposed to amend the said section so as to extend such immunity to cases where penalty is initiated for under-reporting of income in consequence of misreporting, on payment of the tax and interest payable as per the order of assessment under sub-section (3) of section 143 or reassessment under section 147, along with additional income-tax amounting to one hundred per cent. of the aggregate of such tax payable.
This amendment will take effect retrospectively from 1st day of March, 2026.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
15. Amendment of section 270AA.
In section 270AA of the Income-tax Act, for sub-sections (1) to (3), the following sub-sections shall be substituted and shall be deemed to have been substituted with effect from the 1st day of March, 2026, namely:––
“(1) An assessee may make an application to the Assessing Officer to grant immunity from imposition or, as the case may be, waiver of penalty under section 270A and immunity from initiation of proceedings under section 276C or section 276CC, if he fulfils the following conditions, namely: —
(a) the tax and interest payable as per the order of assessment under sub-section (3) of section 143 or reassessment under section 147 has been paid within the period specified in the notice of demand;
(b) where penalty has been levied or, as the case may be, leviable under the circumstances referred to in sub-section (9) of section 270A, additional income-tax amounting to one hundred per cent. of the amount of tax payable on under-reported income has been paid within the period specified in the notice of demand, in lieu of such penalty; and
(c) no appeal has been filed against the order referred to in clauses (a) and (b).
(2) An application referred to in sub-section (1) shall be made within one month from the end of the month in which the order referred to in clause (a) and clause (b) of the said sub-section has been received by the assessee, in such form and verified in such manner, as may be prescribed.
(3) The Assessing Officer shall, on fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition or, as the case may be, waiver of penalty under section 270A and initiation of proceedings under section 276C or section 276CC.
(3A) No immunity or, as the case may be, waiver under sub-section (3) shall be granted where any proceedings has been initiated under Chapter XXII.”.
