Mr. Rishabh Ahuja, Mr. Nikhil Taneja and Mr. Lakshay Gandhi (Chartered Accountants) analyses the proposal for streamlining penalty timelines under Section 275, vide Finance Bill, 2025. The author apprised that Finance Bill, 2025 proposes to amend Section 275 is 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 Pr.CIT/CIT, or the order of revision is passed, or the notice for imposition of penalty is issued. The authors provide a comparative analysis of the existing and proposed time limit for imposing penalty. The authors are of the view, “Bringing uniformity in the timelines for imposition of penalty i.e. 6 months from the end of the relevant quarter is certainly a welcome move by the Government of India. This will result in administrative ease both for department as well as the taxpayer”. Opines that robust integration would be required across systems/departments to ensure that the provisions are followed in true spirit both for faceless/ non-faceless proceedings.

“Rationalization of Penalty Timelines (Section 275)

The Union Budget 2025 was presented by the Hon'ble Finance Minister, Ms. Nirmala Sitharaman on Saturday, February 1, 2025 in the Indian Parliament. The Budget proposals have been targeted in a manner to augment growth potential and global competitiveness.

Amongst other key tax proposals, the Government of India has proposed to streamline the penalty timelines as provided under Section 275 of the Income-tax Act, 1961 (‘the Act’)

In order to understand this in further detail, it would be worthwhile to reproduce the relevant extract of the Memorandum:

“XVII. Time limit to impose penalties rationalized

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.”

In view of the above, Section 275 has been proposed to be substituted in its entirety in order to provide for a single timeline for imposing penalty against which multiple timelines have been provided under the existing provisions.

An attempt has been made below to encapsulate the proposed changes:

Authors’ thoughts

Bringing uniformity in the timelines for imposition of penalty i.e. 6 months from the end of the relevant quarter is certainly a welcome move by the Government of India. This will result in administrative ease both for department as well as the taxpayer.

In addition to the above, it would be worth noting that period of limitation in case of appellate orders has been directly linked with the receipt of such orders by the PCIT/CIT and not with the date of passing of such orders. Accordingly, there could be a scenario where this time limit gets extended due to delay in receipt of such orders by the PCIT/CIT. In light of the same, robust integration would be required across systems/departments to ensure that the provisions are followed in true spirit both for faceless/ non-faceless proceedings.

While it seems that the government has simplified the provisions for administrative ease, it would be interesting to see if any further rationalization is carried out in the fine print of the new Income Tax bill which is expected to be tabled within a week’s time.