Income Tax Notifications & Order IT

Penalty Waiver Under Section 440 of the Income-tax Act 2025: CBDT Notification 134/2026 Brings the New Form 161 for Misreporting Cases

CA Adityavikram Banka

Quick Summary

  • CBDT Notification No. 134/2026 (G.S.R. 871(E), dated 8 October 2026) makes the Income-tax (Sixth Amendment) Rules, 2026. It substitutes Form No. 161, which is now titled “Application for seeking waiver of penalty under section 440(2) of the Income-tax Act, 2025”, and inserts the words “or waiver” in rule 231. The rules come into force on the date of their publication in the Official Gazette.
  • The Finance Act, 2026 substituted section 440 of the Income-tax Act, 2025 with effect from 1 April 2026. A taxpayer penalised for misreporting of income can now apply for a waiver of the penalty by paying additional income-tax of 100% of the tax on under-reported income, or 120% where the income is unexplained income taxed under section 195(1)(b). The misreporting penalty itself is 200%.
  • Before the amendment, section 440(4) barred immunity wherever the penalty was initiated for misreporting under section 439(11).
  • Tax, interest and the additional income-tax must be paid within the period in the notice of demand, no appeal may be filed, and the Form 161 application is due within one month from the end of the month in which the order is received.
  • For FY 2025-26 and earlier years, the parallel provision is section 270AA of the Income-tax Act, 1961, substituted by the Finance Act, 2026 with effect from 1 March 2026 (additional income-tax of 100% for the misreporting cases in section 270A(9)).

What did CBDT Notification 134/2026 change?

The penalty waiver for misreporting under section 440 now has its application form. CBDT Notification No. 134/2026 (F. No. 370142/33/2026-TPL), published as G.S.R. 871(E) dated 8 October 2026, is issued under section 533 read with section 440 of the Income-tax Act, 2025. It makes two changes to the Income-tax Rules, 2026:

  1. Rule 231: after the word “imposition”, the words “or waiver” are inserted. Rule 231 therefore now covers an application to the Assessing Officer to grant immunity from imposition or waiver of penalty under section 439, and immunity from initiation of proceedings under section 478 or section 479, made in Form No. 161.
  2. Form No. 161: the form is substituted in full. Its new title is “Application for seeking waiver of penalty under section 440(2) of the Income-tax Act, 2025”.

The notification records that the rules come into force on the date of their publication in the Official Gazette.

Why was the form changed? The Finance Act, 2026 rewrite of section 440

Section 439 of the Income-tax Act, 2025 levies a penalty on under-reported income: 50% of the tax payable on under-reported income (section 439(9)), rising to 200% where the under-reported income is in consequence of misreporting (section 439(10)). Section 439(11) lists the misreporting cases:

  • (a) misrepresentation or suppression of facts;
  • (b) failure to record investments in the books of account;
  • (c) claim of expenditure not substantiated by any evidence;
  • (d) recording of any false entry in the books of account;
  • (e) failure to record any receipt in books of account having a bearing on total income;
  • (f) failure to report an international transaction, a deemed international transaction or a specified domestic transaction to which Chapter X applies; and
  • (g) income referred to in section 195(1)(b), a clause inserted by the Finance Act, 2026 with effect from 1 April 2026.

Section 195(1)(b) covers income under sections 102 to 106 (unexplained credits, unexplained investment, unexplained asset, unexplained expenditure, and amounts borrowed or repaid through a negotiable instrument or hundi) that is determined by the Assessing Officer and not reflected in the return. Such income is taxed at 30%, a rate the Finance Act, 2026 substituted for 60%.

Under the section 440 as originally enacted, a taxpayer could apply only for immunity from penalty and prosecution, and section 440(4) stated that no immunity would be granted if the penalty under section 439 had been initiated in the circumstances in section 439(11). Misreporting cases were outside the scheme altogether. The Finance Act, 2026 substituted sub-sections (1) to (4) with effect from 1 April 2026 and changed the heading to “Waiver of penalty and immunity from prosecution”.

Section 440 penalty waiver: the four conditions

Under the substituted section 440(1), an assessee may apply to the Assessing Officer for waiver of penalty levied under section 439 and immunity from initiation of proceedings under section 478 or 479 if:

  1. Tax and interest are paid: the tax and interest payable under the order of assessment under section 270(10) or reassessment under section 279 have been paid within the period specified in the notice of demand;
  2. Misreporting cases (a) to (f): where the penalty was levied in the circumstances in section 439(11)(a) to (f), additional income-tax of 100% of the tax payable on under-reported income has been paid within that period, in lieu of the penalty;
  3. Unexplained income, case (g): where the penalty was levied in the circumstances in section 439(11)(g), additional income-tax of 120% of the tax payable on under-reported income has been paid within that period, in lieu of the penalty; and
  4. No appeal: no appeal has been filed against the order of assessment or reassessment and the levy of penalty.
Type of under-reported income Penalty under section 439 Amount payable for waiver under section 440
Under-reporting, not in consequence of misreporting 50% of tax on under-reported income Tax and interest under the order (no additional income-tax)
Misreporting, section 439(11)(a) to (f) 200% of tax on under-reported income Tax and interest, plus additional income-tax of 100% of tax on under-reported income
Misreporting, section 439(11)(g) (unexplained income under section 195(1)(b)) 200% of tax on under-reported income Tax and interest, plus additional income-tax of 120% of tax on under-reported income

When and how is the Form 161 application made?

  • Time limit: within one month from the end of the month in which the order is received by the assessee (section 440(2)).
  • Grant: the Assessing Officer grants the waiver and immunity on fulfilment of the conditions and after the appeal period in section 358(3)(a) expires, which is thirty days from the date of service of the notice of demand (section 440(3)).
  • Bar: no waiver or immunity is granted if any proceeding has been initiated under Chapter XXII, which deals with offences and prosecution (section 440(4)).
  • Decision: the Assessing Officer passes an order accepting or rejecting the application within three months from the end of the month of its receipt; no rejection without an opportunity of being heard; the order is final (section 440(5) to (7)).
  • Effect of acceptance: no appeal under section 356 or 357, and no revision application under section 378, lies against the assessment or reassessment order once the application is accepted (section 440(8)).
  • Effect of rejection: the period from the date of the application to the date the rejection order is served is excluded in computing the thirty-day appeal period (section 358(4)).

What does the new Form 161 ask for?

The substituted form has three parts:

  • Part A, personal information: name, PAN, address and contact details.
  • Part B, the order and the payments: tax year; section under which the order is passed; DIN, date of order and date of service; due date for payment under the notice of demand; income assessed; and under-reported income, split into misreporting under section 439(11)(a) to (f), misreporting under section 439(11)(g), and under-reporting not in consequence of misreporting. It then computes tax and interest on assessed income (item 13), tax on each misreporting amount under section 439(12) (item 14), additional income-tax at 100% and 120% (item 15) and the total amount payable for waiver, being item 13 plus item 15(iii) (item 16). Challan details (BSR code, date, serial number, amount) go in item 17.
  • Verification: the applicant declares that no appeal has been filed against the order, and undertakes that no appeal will be filed before the expiry of the period specified in section 440(5).

Note 3 to the form states that the total amount payable for waiver is to be paid within the due date for payment under the notice of demand. Note 4 states that some information will be pre-filled to the extent possible.

Which Act applies to your case?

Section 536(2)(c) and (d) of the Income-tax Act, 2025 keep the Income-tax Act, 1961 in force for proceedings, including assessment and penalty, in respect of any tax year beginning before 1 April 2026. So:

  • FY 2025-26 and earlier years: section 270AA of the Income-tax Act, 1961 applies. The Finance Act, 2026 substituted its sub-sections (1) to (3) and inserted sub-section (3A) with effect from 1 March 2026. An assessee may now apply for immunity from imposition or waiver of penalty under section 270A; where penalty has been levied or is leviable in the misreporting circumstances in section 270A(9), additional income-tax of 100% of the tax payable on under-reported income must be paid within the period in the notice of demand, in lieu of the penalty. No appeal may be filed, and no immunity or waiver is granted where proceedings under Chapter XXII have been initiated. Rule 129 of the Income-tax Rules, 1962 prescribes Form No. 68 for the section 270AA application.
  • Tax year 2026-27 onward: section 440 of the Income-tax Act, 2025, with the application in Form No. 161 under rule 231 of the Income-tax Rules, 2026, as amended by Notification 134/2026.

The 1961 Act has no counterpart to the 120% rate: section 270AA uses a single 100% rate for all section 270A(9) cases.

What should CAs and taxpayers do when an order arrives?

  1. Read the penalty order for the limb invoked. The amount payable depends on whether the order treats the income as under-reporting, misreporting under clauses (a) to (f), or unexplained income under clause (g).
  2. Compare the waiver cost with the appeal route. Waiver means paying the tax, interest and any additional income-tax and giving up the appeal. Accepted applications also close appeal and revision against the assessment order (section 440(8)).
  3. Pay within the demand notice period. All three amounts must be paid within the period specified in the notice of demand; a late payment fails the condition.
  4. Diarise the application date. File Form 161 (or Form No. 68 for 1961 Act years) within one month from the end of the month in which the order is received.
  5. Do not file an appeal in the meantime. The application requires that no appeal has been filed, and the verification in Form 161 carries an undertaking not to file one.

For other penalty and audit timelines this season, see our post on the late tax audit report penalty and the section 428 fee and our note on the 21 October 2026 tax audit due date.

Sources

  • Source: Central Board of Direct Taxes, Notification No. 134/2026 (F. No. 370142/33/2026-TPL), G.S.R. 871(E), dated 8 October 2026, Income-tax (Sixth Amendment) Rules, 2026, incometaxindia.gov.in.
  • Source: Income-tax Act, 2025 as amended by the Finance Act, 2026, sections 195, 358, 439, 440 and 536, incometaxindia.gov.in.
  • Source: Income-tax Act, 1961 as amended by the Finance Act, 2026, section 270AA, incometaxindia.gov.in.
  • Source: Income-tax Rules, 2026, rule 231, and Income-tax Rules, 1962, rule 129, incometaxindia.gov.in.

Talk to an expert

Received an assessment or penalty order and weighing a section 440 or section 270AA application against an appeal? Tax Update India can help you work through the numbers and the deadlines. Book a quick call.

Disclaimer: This article is for general information only and reflects the law as on the date of publication. It is not legal or tax advice. Please consult a qualified professional before acting on it.

CA Adityavikram Banka
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