Comparison of Penalty under I Tax Act 1961 vs I Tax Act 2025

Comparison of major penalty provisions under the Income-tax Act, 1961, vis-à-vis the Income-tax Act, 2025

The Income-tax Act, 2025 has reorganized and renumbered the penalty framework contained in Chapter XXI of the Income-tax Act, 1961. While most penalty provisions have been retained with minimal substantive changes, certain important modifications have been introduced concerning misreporting of income, waiver of penalties, crypto-asset reporting, SFT compliance, and the authority empowered to levy penalties.

Income Tax Act, 2025 vs. Income Tax Act, 1961

The Income-tax Act, 2025, is primarily a simplification, consolidation, and renumbering exercise. Most penalties are renumbered, not rewritten. Penalty quantum remains broadly unchanged across most provisions.  The assessing officer becomes the principal penalty authority in several sections. Crypto-asset reporting emerges as a new compliance area. Reasonable cause protection is withdrawn in certain cash and payment-related defaults. SFT default penalties are rationalized with a maximum cap of INR 1 lakh.  Procedural safeguards like hearing opportunity, show-cause notice and limitation periods continue under the new regime. While the penalty architecture broadly mirrors the Income-tax Act, 1961, notable changes have been introduced in misreporting cases, immunity provisions, crypto-asset reporting, SFT compliance, and penalty administration. Following are major changes introduced by the Income Tax Act, 2025

1. Penalty for Under-Reporting and Misreporting of Income

Particulars	IT Act, 1961 (Sec. 270A)	IT Act, 2025 (Sec. 439)
Under-reporting of income	Penalty of 50% of tax payable on under-reported income	Penalty of 50% of tax payable on under-reported income
Misreporting of income	Penalty of 200% of tax payable on under-reported income	Penalty of 200% of tax payable on under-reported income

Detailed Explanation: Section 270A of the 1961 Act introduced a distinction between under-reporting and misreporting of income. Under-reporting generally covers situations where assessed income exceeds returned income, reassessment results in higher income, or losses are reduced. Misreporting includes suppression of facts, false entries, bogus expenses, unrecorded investments, etc.

Under the new Act, Section 439 substantially retains the same penalty structure. However, a new seventh category of misreporting has been introduced by including income covered under Section 195(1)(b). Further, the exclusion available for certain search-related undisclosed income under the old law has been removed. The penalty rates remain unchanged at 50% for under-reporting and 200% for misreporting. Following are Key Takeaway

The compliance burden remains broadly unchanged, but the scope of misreporting has widened under the new law.

2. Immunity / Waiver from Penalty

Particulars	IT Act, 1961 (Sec. 270AA)	IT Act, 2025 (Sec. 440)
Waiver available	Yes	Yes
Tax and Interest Payment	Mandatory	Mandatory
Additional tax for misreporting	100%	100% / 120%

Detailed Explanation : The old law allowed an assessee to seek immunity from penalty and prosecution if:

• Tax and interest had been paid.
• No appeal was filed.
• Additional tax was paid where required.

The new Act continues this relief mechanism. However, where the penalty relates to the newly introduced misreporting category under Section 439(11)(g), waiver will be available only if the assessee pays 120% of the tax payable on under-reported income instead of the existing 100%.

Key Takeaway: the Government has increased the cost of obtaining immunity in specified cases of serious misreporting.

3. Failure to Keep, Maintain, or Retain Books of Account

Particulars	Sec. 271A	Sec. 441
Default	Failure to maintain books	Same
Penalty	INR  25,000	INR  25,000

Detailed Explanation: The penalty applies where a person fails to maintain books of account as prescribed or fails to retain them for the prescribed period. The penalty continues to be INR  25,000. The only change is the corresponding reference under the new Act.

Key Takeaway : No substantive change. Only sectional renumbering.

4. Failure to Maintain Transfer Pricing Documentation

Particulars	Sec. 271AA	Sec. 442
Failure to Maintain Documents	2% of transaction value	Same
Failure to Furnish Information	INR  5,00,000	Same

Detailed Explanation: The section applies to international and specified domestic transactions where:

• Documentation is not maintained.
• Transactions are not reported.
• Incorrect information is furnished.

The penalty structure remains identical under Section 442 of the new Act.

Key Takeaway : Only renumbering; no substantive amendment.

5. Penalty on Unexplained Income

Particulars	Sec. 271AAC	IT Act, 2025
Income u/s 68 to 69D	10% of tax payable u/s 115BBE	Omitted

Detailed Explanation : The old law imposed a penalty of 10% of tax payable on unexplained cash credits, investments and expenditures assessed under Sections 68 to 69D. Such penalty was in addition to tax under Section 115BBE. The equivalent provision has not been carried forward into the Income-tax Act, 2025.

Key Takeaway : This is one of the most notable omissions under the new Act.

6. Penalty for False Entry in Books

Particulars	Sec. 271AAD	Sec. 444
False Entry	Amount of false entry	Same
Omitted Entry	Amount omitted	Same

Detailed Explanation : This penalty applies where:

• Fake invoices are recorded.
• Bogus documents are used.
• Transactions with non-existent parties are recorded.
• Income-related entries are deliberately omitted.

The penalty continues to be equal to the aggregate amount of such false or omitted entries.

Key Takeaway: No reduction or increase in penalty exposure.

7. Failure to Get Accounts Audited

Particulars	ITA 1961	ITA 2025
Penalty	0.5% of turnover or INR  1,50,000, whichever is lower	Shifted to Section 428

Detailed Explanation : Earlier governed by Section 271B. The Finance Act, 2026 has relocated the audit-related penalty provisions, and Section 446 is now used for crypto reporting defaults.

Key Takeaway: The audit penalty continues but under a different provision.

8. Crypto-Asset Reporting Default (New Provision)

Particulars	ITA 1961	Sec. 446
Failure to Furnish Statement	NA	INR  200 per day
Inaccurate Reporting	NA	INR  50,000

Detailed Explanation: The new Act introduces a dedicated reporting framework for crypto-assets. Penalties may be levied for:

• Failure to submit prescribed statements.
• Furnishing incorrect information.
• Failure to perform prescribed due diligence.

Key Takeaway: A completely new compliance regime introduced under the 2025 Act.

9. TDS Default

Particulars	Sec. 271C	Sec. 448
Penalty	Equal to tax not deducted/paid	Same

Major Change : The power to levy penalty is now with the Assessing Officer instead of the Joint Commissioner.

10. TCS Default

Particulars	Sec. 271CA	Sec. 449
Penalty	Equal to tax not collected	Same

Major Change : Penalty authority shifted from Joint Commissioner to Assessing Officer.

11. Violation of Cash Loan / Deposit Restrictions

Particulars	Sec. 271D	Sec. 450
Penalty	Equal to amount accepted	Same

Major Change : Only section renumbering and change in authority. Quantum unchanged.

12. Violation of Cash Receipt Restrictions

Particulars	Sec. 271DA	Sec. 451
Penalty	Equal to receipt amount	Same

Major Change : The protection available where the taxpayer proved “good and sufficient reasons” has been removed.

13. Failure to Provide Digital Payment Facility

Particulars	Sec. 271DB	Sec. 452
Penalty	INR  5,000 per day	INR  5,000 per day

Major Change : The defense of “good and sufficient reasons” has been omitted.

14. Violation of Cash Repayment Restrictions

Particulars	Sec. 271E	Sec. 453
Penalty	Equal to amount repaid	Same

Major Change : No substantive change.

15. Failure to Furnish SFT

Particulars	Sec. 271FA	Sec. 454
Initial Delay	INR  500/day	Omitted
Post Notice Delay	INR  1,000/day	INR  1,000/day
Maximum Penalty	No cap	INR  1,00,000 cap

Major Change : The penalty regime is simplified and capped at INR  1 lakh under the new Act.

16. Furnishing Inaccurate SFT

Particulars	Sec. 271FAA	Sec. 455
Penalty	INR  50,000	INR  50,000

Major Change : Additional penalty of INR  5,000 per inaccurate reportable account retained.

17. Failure to Furnish Foreign Asset Information

Particulars	Sec. 271GC	Sec. 460
Up to 3 Months Delay	INR  1,000/day	Same
Beyond 3 Months	INR  1,00,000	Same

Major Change : No substantive amendment.

18. Incorrect Certificates by Professionals

Particulars	Sec. 271J	Sec. 463
Penalty	INR  10,000 per report	Same

Covered Persons

• Chartered Accountants
• Merchant Bankers
• Registered Valuers

19. Failure to Answer Questions / Furnish Information

Particulars	Sec. 272A	Sec. 465
Penalty	INR  10,000 per default	Same

Major Change : No substantive amendment.

20. Reasonable Cause Relief

Particulars	Sec. 273B	Sec. 470
Relief Available	Yes	Yes

Major Change : The relief principle continues, though section references have been aligned with the new Act structure.

21. Procedure for Imposition of Penalty

Particulars	Sec. 274	Sec. 471
Show Cause Notice	Mandatory	Mandatory
Opportunity of Hearing	Mandatory	Mandatory

Major Change : From 01.04.2027, penalties under Section 439 may form part of the assessment or reassessment order itself. Certain faceless penalty provisions have not been reproduced.

22. Limitation for Passing Penalty Orders

Particulars	Sec. 275	Sec. 472
Limitation Period	Six months from relevant quarter	Same

Major Change : No substantive change. The limitation framework and timelines remain largely preserved.

Conclusion

The Income-tax Act, 2025, is primarily a restructuring and renumbering exercise rather than a major overhaul of penalty provisions. The key changes emerging from the presentation are as follows:

1. Introduction of a new category of misreporting of income under Section 439.
2. Immunity cost increased to 120% for specified misreporting cases.
3. Crypto-asset reporting penalties introduced under Section 446.
4. Section 271AAC omitted from the new legislation.
5. Assessing Officer becomes the principal penalty authority in several provisions.
6. “Good and sufficient reasons” defense removed in certain cash transaction and digital payment violations.
7. SFT penalty rationalized with a maximum cap of INR  1 lakh.
8. Most provisions continue with the same penalty quantum, indicating continuity rather than reform.
9. Procedural safeguards such as show-cause notice, opportunity of hearing, approval requirements, and limitation periods have largely been preserved.

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