Section 245H — Power of Settlement Commission to Grant Immunity from Prosecution and Penalty
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The Commission may, if satisfied that the applicant has cooperated and made a full and true disclosure of his income and the manner of deriving it, grant immunity from prosecution for any offence under the Act (and, on terms, from prosecution under the general law and certain other Acts) and from penalty, subject to conditions; with a bar on granting prosecution immunity where proceedings were instituted before the application; and provision for withdrawal of immunity if conditions are not complied with or particulars were concealed. Applies mutatis mutandis to the Interim Board.
Heading: Power of Settlement Commission to grant immunity from prosecution and penalty.
Finance Act, 2026: Not amended.
Authorities digested: 5 (a litigated discretionary power — immunity and its limits).
A. SECTION COMMENTARY
1. The quid pro quo of settlement
Immunity from prosecution and penalty is the inducement that makes settlement attractive: in exchange for full disclosure and cooperation, the applicant buys peace not only on quantum but on penal consequences. Section 245H conditions the immunity on the Commission's satisfaction that the applicant has cooperated and made a full and true disclosure of his income and the manner of deriving it. The disclosure condition links section 245H back to the foundation of section 245C.
2. Discretion, but a structured one
The grant is discretionary, but the discretion is structured by the statutory conditions and must be exercised on relevant considerations. Where the conditions are met, the Commission may grant immunity; the High Courts have upheld the Commission's discretion to do so on a full and true disclosure (and have declined to interfere with a grant made “in the spirit of settlement”). Section 245H is not confined to penalties under particular sections; it does not exclude penalties such as those under sections 271D/271E from the field of immunity.
3. The limits — pre-instituted prosecution and withdrawal
Two limits matter. First, immunity from prosecution cannot be granted in respect of proceedings for prosecution instituted before the date of receipt of the application — the Commission cannot undo a prosecution already launched. Second, immunity is liable to be withdrawn if the applicant fails to comply with the conditions on which it was granted, or if it appears that he had concealed particulars or given false evidence; immunity is a conditional, defeasible grant, not an absolute amnesty.
4. Effect of a valid immunity — the Krishnaswami principle
Where immunity has been validly granted and the settlement order records no finding of wilful evasion, the continuation of a prosecution is an abuse of process. The Supreme Court in Vijay Krishnaswami held that, the findings of the Settlement Commission being conclusive under section 245-I, the authorities ought to have informed the criminal court that continuing the prosecution would be an abuse of process, and imposed costs on the Revenue for persisting. Section 245H immunity, once valid, must be given effect.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
245H.
(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose for the reasons to be recorded in writing, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement :
Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C :
Provided further that the Settlement Commission shall not grant immunity from prosecution for any offence under the Indian Penal Code (45 of 1860) or under any Central Act other than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a person who makes an application under section 245C on or after the 1st day of June, 2007.
(1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specified in the order of settlement passed under sub-section (4) of section 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted.
(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person had, in the course of the settlement proceedings, concealed any particulars material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.
(3) On and from the 1st day of February, 2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.
Words/sub-sections omitted by amendment carry the marker [***].
C. AUTHORITIES
Five decisions on the grant, scope, limits and effect of immunity under section 245H.
Cluster 1 — Scope of the immunity power and judicial review
N. Krishnan v. Settlement Commission, (1989) 180 ITR 585 (Kar)
Citation: (1989) 180 ITR 585 (Kar).
Facts: Challenge to the Commission's exercise of power, including on immunity; the scope of judicial review of the Commission's discretionary orders was in issue.
Held: The High Court will interfere with a Commission order only where there is a grave procedural defect such as violation of mandatory procedural requirements, or where there is no nexus between the reasons given and the decision; the Commission's discretion under section 245H, exercised on a full and true disclosure and cooperation, is wide.
Relevance: Leading High Court authority on the breadth of the section 245H discretion and the narrow scope of review.
Immunity not excluded for sections 271D/271E penalties (High Court line)
Held / relevance: Section 245H does not exclude penalties such as those under sections 271D and 271E from the field of immunity; a mistaken recital that the assessee is not entitled to immunity from such penalty does not, by itself, make the order vulnerable. Authority for the wide subject-matter of the immunity power. (Cited as a High Court proposition.)
Cluster 2 — Effect of immunity; abuse of process to continue prosecution
A valid immunity, and conclusive settlement findings, bar continued prosecution.
Vijay Krishnaswami @ Krishnaswami Vijayakumar v. Deputy Director of Income-tax (Investigation), 2025 INSC 1048 (SC)
Citation: 2025 INSC 1048 (SC); decided 28 August 2025.
Facts: After a search and seizure of unaccounted cash, prosecution was launched for wilful attempt to evade tax; the assessee then approached the Settlement Commission under section 245C, disclosed additional income and obtained settlement; the Revenue continued the prosecution.
Held: In terms of section 245-I the findings of the Settlement Commission are conclusive; where the Commission recorded no finding of wilful evasion, continuation of the prosecution amounted to an abuse of process; the Revenue ought to have informed the criminal court accordingly. Costs of Rs. 2 lakh were imposed on the Department for prosecuting in violation of its own circulars.
Relevance: Recent Supreme Court authority giving teeth to section 245H immunity and the conclusiveness of settlement findings (section 245-I) against a continued prosecution.
K.S. Thirumalaivasan v. Chairman, Settlement Commission, (2022) (Mad)
Citation: Madras High Court, decided 27 June 2022.
Held: Considered the grant of immunity from prosecution and penalty in the context of a full and true disclosure and cooperation, and the conditions on which such immunity operates.
Relevance: High Court application of section 245H immunity principles; cited as a High Court decision.
Held / relevance: The discretion under the Chapter, including under section 245H, must be exercised consistently with natural justice; an order in breach is of no value. Cited as the governing fairness authority.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Income-tax Settlement Commission ceased to operate for applications made on or after 1 February 2021 (Finance Act, 2021); pending applications stand transferred to the Interim Board for Settlement (section 245AA). Finance Act, 2026 makes no change to any section of Chapter XIX-A. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XIX-A — SETTLEMENT OF CASES
Section 245H — Power of Settlement Commission to Grant Immunity from Prosecution and Penalty
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: The Commission may, if satisfied that the applicant has cooperated and made a full and true disclosure of his income and the manner of deriving it, grant immunity from prosecution for any offence under the Act (and, on terms, from prosecution under the general law and certain other Acts) and from penalty, subject to conditions; with a bar on granting prosecution immunity where proceedings were instituted before the application; and provision for withdrawal of immunity if conditions are not complied with or particulars were concealed. Applies mutatis mutandis to the Interim Board.
Heading: Power of Settlement Commission to grant immunity from prosecution and penalty.
Finance Act, 2026: Not amended.
Authorities digested: 5 (a litigated discretionary power — immunity and its limits).
A. SECTION COMMENTARY
1. The quid pro quo of settlement
Immunity from prosecution and penalty is the inducement that makes settlement attractive: in exchange for full disclosure and cooperation, the applicant buys peace not only on quantum but on penal consequences. Section 245H conditions the immunity on the Commission's satisfaction that the applicant has cooperated and made a full and true disclosure of his income and the manner of deriving it. The disclosure condition links section 245H back to the foundation of section 245C.
2. Discretion, but a structured one
The grant is discretionary, but the discretion is structured by the statutory conditions and must be exercised on relevant considerations. Where the conditions are met, the Commission may grant immunity; the High Courts have upheld the Commission's discretion to do so on a full and true disclosure (and have declined to interfere with a grant made “in the spirit of settlement”). Section 245H is not confined to penalties under particular sections; it does not exclude penalties such as those under sections 271D/271E from the field of immunity.
3. The limits — pre-instituted prosecution and withdrawal
Two limits matter. First, immunity from prosecution cannot be granted in respect of proceedings for prosecution instituted before the date of receipt of the application — the Commission cannot undo a prosecution already launched. Second, immunity is liable to be withdrawn if the applicant fails to comply with the conditions on which it was granted, or if it appears that he had concealed particulars or given false evidence; immunity is a conditional, defeasible grant, not an absolute amnesty.
4. Effect of a valid immunity — the Krishnaswami principle
Where immunity has been validly granted and the settlement order records no finding of wilful evasion, the continuation of a prosecution is an abuse of process. The Supreme Court in Vijay Krishnaswami held that, the findings of the Settlement Commission being conclusive under section 245-I, the authorities ought to have informed the criminal court that continuing the prosecution would be an abuse of process, and imposed costs on the Revenue for persisting. Section 245H immunity, once valid, must be given effect.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
245H.
(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose for the reasons to be recorded in writing, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement :
Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C :
Provided further that the Settlement Commission shall not grant immunity from prosecution for any offence under the Indian Penal Code (45 of 1860) or under any Central Act other than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a person who makes an application under section 245C on or after the 1st day of June, 2007.
(1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specified in the order of settlement passed under sub-section (4) of section 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted.
(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person had, in the course of the settlement proceedings, concealed any particulars material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.
(3) On and from the 1st day of February, 2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.
Words/sub-sections omitted by amendment carry the marker [***].
C. AUTHORITIES
Five decisions on the grant, scope, limits and effect of immunity under section 245H.
Cluster 1 — Scope of the immunity power and judicial review
N. Krishnan v. Settlement Commission, (1989) 180 ITR 585 (Kar)
Citation: (1989) 180 ITR 585 (Kar).
Facts: Challenge to the Commission's exercise of power, including on immunity; the scope of judicial review of the Commission's discretionary orders was in issue.
Held: The High Court will interfere with a Commission order only where there is a grave procedural defect such as violation of mandatory procedural requirements, or where there is no nexus between the reasons given and the decision; the Commission's discretion under section 245H, exercised on a full and true disclosure and cooperation, is wide.
Relevance: Leading High Court authority on the breadth of the section 245H discretion and the narrow scope of review.
Immunity not excluded for sections 271D/271E penalties (High Court line)
Held / relevance: Section 245H does not exclude penalties such as those under sections 271D and 271E from the field of immunity; a mistaken recital that the assessee is not entitled to immunity from such penalty does not, by itself, make the order vulnerable. Authority for the wide subject-matter of the immunity power. (Cited as a High Court proposition.)
Cluster 2 — Effect of immunity; abuse of process to continue prosecution
A valid immunity, and conclusive settlement findings, bar continued prosecution.
Vijay Krishnaswami @ Krishnaswami Vijayakumar v. Deputy Director of Income-tax (Investigation), 2025 INSC 1048 (SC)
Citation: 2025 INSC 1048 (SC); decided 28 August 2025.
Facts: After a search and seizure of unaccounted cash, prosecution was launched for wilful attempt to evade tax; the assessee then approached the Settlement Commission under section 245C, disclosed additional income and obtained settlement; the Revenue continued the prosecution.
Held: In terms of section 245-I the findings of the Settlement Commission are conclusive; where the Commission recorded no finding of wilful evasion, continuation of the prosecution amounted to an abuse of process; the Revenue ought to have informed the criminal court accordingly. Costs of Rs. 2 lakh were imposed on the Department for prosecuting in violation of its own circulars.
Relevance: Recent Supreme Court authority giving teeth to section 245H immunity and the conclusiveness of settlement findings (section 245-I) against a continued prosecution.
K.S. Thirumalaivasan v. Chairman, Settlement Commission, (2022) (Mad)
Citation: Madras High Court, decided 27 June 2022.
Held: Considered the grant of immunity from prosecution and penalty in the context of a full and true disclosure and cooperation, and the conditions on which such immunity operates.
Relevance: High Court application of section 245H immunity principles; cited as a High Court decision.
R.B. Shreeram Durga Prasad v. Settlement Commission, (1989) 176 ITR 169 (SC) [cognate]
Held / relevance: The discretion under the Chapter, including under section 245H, must be exercised consistently with natural justice; an order in breach is of no value. Cited as the governing fairness authority.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Income-tax Settlement Commission ceased to operate for applications made on or after 1 February 2021 (Finance Act, 2021); pending applications stand transferred to the Interim Board for Settlement (section 245AA). Finance Act, 2026 makes no change to any section of Chapter XIX-A. Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.