Income Tax

Penalty Provisions Under Old Act vs New Act Comparison 2025: Checklist, Due Dates & Common Mistakes

By CA Nikhil Gupta Updated June 2026 New Act Live

Reviewed by CA Nikhil Gupta · Last reviewed 26 September 2026

Corrected 26 September 2026: every new-Act penalty section number was re-checked against Chapter XXI of the Income-tax Act, 2025, and the case study and response guidance were revised.

Official sources cited: Income-tax Act 2025 Chapter XXI (Sections 439–472) | incometax.gov.in | CBDT Circulars

Penalty is the most feared outcome of a tax assessment — and the most misunderstood. The Income-tax Act 2025 consolidates and renumbers the penalty provisions of Sections 270A to 275 of the old Act into Chapter XXI (Sections 439 to 472). Penalty amounts are largely carried forward, but every section number is new. This guide maps every key penalty section, explains what triggers each, and shows how to respond or seek immunity.

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Complete Penalty Section Mapping — Old to New Act

Penalty Type	Old Section	New Section (2025)	Quantum (as under the 1961 Act)
Under-reporting of income	Section 270A	Section 439	50% of tax on under-reported income
Misreporting of income	Section 270A(8)-(9)	Section 439 (misreporting limb)	200% of tax on misreported income
Failure to maintain books	Section 271A	Section 441	₹25,000
Failure to get accounts audited	Section 271B	No separate penalty section identified - check Section 428 (fee for default in furnishing return of income, audited accounts and reports)	0.5% of turnover or ₹1.5 lakh, whichever lower (1961 Act)
Failure to furnish audit report	Section 271B	As above - check Section 428	Same as above
Failure to deduct/deposit TDS	Section 271C	Section 448	Amount equal to TDS not deducted/deposited
Late filing of TDS return	Section 271H	Section 461 (late fee: Section 427, old 234E)	₹10,000 to ₹1 lakh
Late filing of ITR (fee)	Section 234F	Section 428	₹1,000 (income up to ₹5L) or ₹5,000
Undisclosed income — search	Section 271AAB	No direct counterpart: Section 271AAB does not apply to searches initiated on or after 1 September 2024 (block-assessment regime)	30%–60% of undisclosed income for older searches
Unexplained cash credits, investments, money or expenditure (old Sections 68–69D income)	Section 271AAC	Section 443 (income under Sections 102–106)	10% of the tax payable on that income
Failure to comply with a notice under Section 133(6)	Section 272A(2)	Section 465	₹500 for each day the failure continues

Under-Reporting vs Misreporting — Critical Distinction

The distinction between under-reporting and misreporting determines whether the penalty is 50% or 200% of tax. This is the single most important distinction in the penalty chapter:

Under-Reporting (50% Penalty) — Triggers

Income assessed by AO is more than income returned by taxpayer (even without any deliberate concealment)
Any deemed income is included in assessment
Additions based on estimation or best judgement (an estimated addition can be excluded where the accounts are correct and complete but the income cannot be properly deduced from them - old Section 270A(6)(b))
Note: an addition is excluded from under-reported income where the taxpayer offers a bona fide explanation and has disclosed all material facts (old Section 270A(6)(a))

Misreporting (200% Penalty) — Triggers

Misrepresentation or suppression of facts in the return or during assessment
Failure to record any receipt in the books of account
Claim of expenditure not substantiated by evidence
False entry in books of account
Failure to report any international transaction or specified domestic transaction
Failure to record investments in the books of account

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Misreporting carries 200%: Once an addition falls within the misreporting categories, the rate is 200% of the tax, not 50%. Replies to the Assessing Officer should describe the facts accurately and completely: where a difference is a genuine interpretation or estimation issue, say so and support it with documents. Describing a transaction in a way the records do not support creates a larger risk, not a smaller one.

Case Study: How One Sentence Quadrupled the Penalty

Textile Trader, Surat — AY 2023-24

Harish, a fabric trader, made a cash purchase of ₹9 lakh that he couldn't explain to the AO's satisfaction. During the assessment, his accountant, trying to cooperate, said in a written submission: "the entry was made in the books but the purchase was bogus." The AO used this to classify the addition as "misreporting" under Section 270A(9) (old Act), triggering 200% penalty.

Tax on ₹9L Addition

₹2.81 lakh (30% slab + 4% cess)

Penalty at 200%

₹5.62 lakh

Total outgo: about ₹8.42 lakh — close to the whole ₹9 lakh addition. At the 50% under-reporting rate the penalty would have been about ₹1.40 lakh. Note that a claim of expenditure with no supporting evidence is itself a misreporting category (old Section 270A(9)(c)), so the rate turns on the evidence, not on wording.

Lesson: Every word in a written reply matters, so write it from the records. If the purchase was genuine but poorly documented, produce whatever evidence exists (supplier details, stock records, transport or delivery proof) before the order is passed, and state the facts accurately.

Immunity from Penalty — When You Can Escape

Under old Section 270A(6) - carried into Section 439 of the new Act (confirm the corresponding sub-section) - these amounts are excluded from under-reported income:

Bona fide explanation: the taxpayer offers an explanation that the Assessing Officer finds bona fide and has disclosed all material facts
Estimated additions: the addition is an estimate, and the accounts are correct and complete but the income cannot be properly deduced from them; or the taxpayer had already estimated a lower addition on the same issue, included it in the return and disclosed all material facts
Transfer pricing: the addition is an arm's length price adjustment, and the transaction was reported, documentation was maintained and all material facts were disclosed
Immunity by accepting the order: under Section 440 (old Section 270AA), a taxpayer who pays the tax and interest within the time in the demand notice and does not appeal can apply, within one month from the end of the month in which the order is received, for immunity from the under-reporting penalty. It is not available where the penalty was initiated for misreporting.

Faceless Penalty Proceedings — How They Work

The faceless penalty scheme was notified under the old Act (Section 274(2A)); in the new Act the penalty procedure sits in Section 471. Key features:

Proceedings covered by the scheme are handled by the faceless penalty set-up, not the local office
Taxpayer receives a notice (show-cause notice) digitally on the income tax portal
Response must be filed online — no physical visit to the AO's office
The penalty order is passed by a faceless penalty unit — not the original Assessing Officer
Penalty order can be contested through appeal to JCIT(A)/CIT(A) under Section 356/357

Penalty for TDS Non-compliance

TDS-related penalties remain one of the most common penalty triggers for businesses:

TDS Default	Old Section	New Section	Penalty
TDS not deducted	271C	448	100% of TDS amount not deducted
TDS deducted but not deposited	271C	448	100% of TDS amount not deposited
Late filing of TDS return (24Q/26Q; Forms 138/140 from Tax Year 2026-27)	271H	461	₹10,000 to ₹1 lakh
Incorrect PAN in TDS return	272B	467	₹10,000 per incorrect PAN

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TDS Penalty Has No Immunity Route: Unlike the under-reporting penalty (which has immunity if the taxpayer accepts and pays), the TDS penalty under Section 448 (old 271C) has limited escape routes. The main defences are that the payment was not liable to TDS, or reasonable cause (old Section 273B; new Section 470).

Penalty Response Checklist

Read the penalty notice carefully — identify which section and which addition is the basis
State the facts accurately and completely in every written reply, and attach the supporting documents
Where a difference is a genuine interpretation or estimation issue, say so and cite the evidence
If you accept the assessment, apply for immunity under Section 440 (old 270AA) within one month from the end of the month in which the order is received
For TDS penalty: check if the transaction genuinely attracted TDS obligation before conceding
Respond within the time given in the show-cause notice — without a reply, the order can be passed on the record as it stands
Appeal against a penalty order within 30 days of receiving it

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Frequently Asked Questions

Under Section 439 of the Income-tax Act 2025 (old Section 270A), the penalty for under-reporting of income is 50% of the tax payable on the under-reported income. For misreporting — which involves false entries, suppression of facts, or fraudulent claims — the penalty is 200% of the tax. The AO must pass a separate penalty order and give the taxpayer an opportunity to respond before the penalty is levied.

Under Section 440 of the Income-tax Act 2025 (old Section 270AA), if you accept the assessment order (without filing an appeal) and pay the tax and interest within the time in the demand notice, you can apply for immunity within one month from the end of the month in which you received the order. If immunity is granted, the 50% under-reporting penalty is not levied. For a 200% misreporting penalty this route is not available; the remedy is an appeal.

No. A penalty is not automatic. The Assessing Officer must separately initiate penalty proceedings, issue a show-cause notice (SCN) to the taxpayer, and pass a penalty order after considering the taxpayer's response. The SCN gives you an opportunity to explain why penalty should not be levied — a bona fide reason (like a genuine interpretation dispute or documentation gap) can result in penalty being waived.

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Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: Income Tax
Official starting point: www.incometax.gov.in

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Primary sources & related provisions

Statutory provisions referenced in this guide: