Penalty Provisions Under Income-tax Act 1961 vs 2025: Practitioner Comparison
Reviewed by Ravi Sisodia · Last reviewed 13 August 2026
Finin2min 2-Minute Summary
- The 2025 Act applies prospectively from 1 April 2026, while proceedings and liabilities relating to earlier tax years can continue under the 1961 Act through section 536's repeal-and-savings rules.
- The flagship under-reporting/misreporting architecture moves from old section 270A to section 439. Section 439 provides 50% of tax on under-reported income and 200% where the under-reporting results from specified misreporting.
- Do not assume every penalty was merely renumbered. The 2025 Act reorganises the penalty chapter and Finance Act 2026 also amended parts of the current architecture; use the consolidated current Act for the default date.
- A penalty file should separately identify the substantive tax adjustment, the exact default, competent authority, reasonable-cause/immunity route where available, show-cause response and limitation/timeline.
- Historical penalty tables for AY 2026-27 under the 1961 Act are not a substitute for Tax Year 2026-27 penalty analysis under the 2025 Act.
The governing Act follows the underlying tax year/default
The biggest transition error is choosing the penalty section from the date of the notice rather than the legal period to which the default relates. Section 536 preserves proceedings and consequences for tax years under the repealed Act. A notice issued in 2027 can therefore still require a 1961 Act analysis when it concerns an earlier assessment year.
For Tax Year 2026-27 onwards, begin with the 2025 Act's Chapter XXI and current Finance Act amendments. Keep a crosswalk column to the old section for practitioner familiarity, but the operative response should cite the current provision.
Under-reporting vs misreporting remains a high-consequence distinction
Section 439 states a 50% penalty on tax payable on under-reported income. Where the under-reporting is in consequence of misreporting, the rate is 200%. The statutory misreporting list includes categories such as suppression/misrepresentation of facts, false entries, unrecorded receipts or investments, unsubstantiated expenditure and specified transaction-reporting failures.
That makes evidence quality central. A disallowance does not automatically equal misreporting. The response should identify what information was disclosed, what legal position was taken, what documents supported it and whether the facts fit a listed misreporting category.
Worked example: 2025-26 deduction disputed after repeal
Suppose an assessment for FY 2025-26 is completed after 1 April 2026 and the officer proposes penalty on a disputed deduction. The practitioner should first preserve the old-Act track because the income belongs to a period before the new Act commenced. By contrast, an analogous default for Tax Year 2026-27 starts under the 2025 Act. Using section 439 merely because the notice is dated 2027 would be wrong for the first case.
Penalty defence / governance file
- Identify tax year, default date and governing Act.
- Map the exact current/legacy section and penalty base.
- Separate quantum dispute from penalty ingredients.
- Preserve return disclosure, tax audit report, legal memo and underlying evidence.
- Check reasonable-cause, immunity, settlement or appeal routes available under the governing law.
- Track show-cause and limitation dates independently from the assessment timeline.
Questions readers commonly ask
What replaces old section 270A?
The under-reporting and misreporting framework is in section 439 of the Income-tax Act, 2025.
What are the section 439 rates?
The current section states 50% of tax on under-reported income and 200% when under-reporting results from specified misreporting.
Does a notice issued after 1 April 2026 always use the new Act?
No. Section 536 can preserve the old Act for earlier tax years and proceedings.
Should practitioners rely on an old penalty chart for TY 2026-27?
No. Use the consolidated Income-tax Act, 2025 as amended, because section numbering and some substantive architecture have changed.
Official / primary sources
- Income-tax Act, 2025 - section 439 - Under-reporting and misreporting; 50% / 200% framework
- Income-tax Act, 2025 current consolidated text - Chapter XXI and section 536 savings
- Income Tax Department transition FAQs - Earlier tax years/proceedings continue under repeal-and-savings
- CBDT old-vs-new Act comparison utility - Practitioner cross-reference tool
Disclaimer
Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.