⚖️ Finance Bill 2026 — Chapter III

Penalties & Prosecution Reforms 2026

Finance Bill 2026 significantly restructures penalties and prosecution provisions under the Income-tax Act — consolidating offences, introducing clearer immunity pathways, and adding a new bar on vexatious proceedings.

🔴 Penalty for Under-Reporting — Section 270A

Section 270A penalises under-reporting and misreporting of income. The 2026 amendment clarifies definitions and tightens the penalty computation:

• Under-reporting: Penalty = 50% of tax payable on under-reported income
• Misreporting (deliberate): Penalty = 200% of tax on misreported income
• Amendment clarifies what constitutes “misreporting” to reduce litigation
• New safeguards prevent penalty in cases of bonafide errors with full disclosure

🛡️ Immunity from Penalty — Section 270AA

Section 270AA allows taxpayers to apply for immunity from penalty and prosecution if they pay tax and interest on the assessed income and do not file an appeal. The 2026 amendment:

• Extends the application window from 1 month to 3 months from the date of assessment order
• Immunity now also covers cases under the new Section 147A (reassessment)
• Immunity once granted cannot be revoked unless obtained by fraud or misrepresentation

🧾 Consolidated Prosecution — Sections 276B to 276D

Sections 276B, 276BB, 276C, 276CC, 276CCC, and 276D are replaced by a single consolidated section to simplify prosecution framework for TDS/TCS defaults and wilful tax evasion:

• Failure to deduct/collect and deposit TDS/TCS: Rigorous imprisonment 3 months to 7 years + fine
• Wilful attempt to evade tax: Rigorous imprisonment 6 months to 7 years
• Prosecution can be compounded (settled) before or during trial — new compounding guidelines issued
• Prosecution requires prior sanction of Principal Commissioner or above

🚫 New Section 292BA — Bar on Proceedings

The Finance Bill inserts Section 292BA to prevent vexatious or repeated proceedings against the same taxpayer for the same matter. Key points:

• No fresh prosecution can be initiated if earlier prosecution for the same offence has concluded
• Protects taxpayers against double jeopardy in tax matters
• Applies prospectively to all prosecutions initiated after the Finance Act, 2026 comes into force