Section 281 protects the recovery of tax against transfers made to put assets beyond reach. Where, during the pendency of any proceeding under the Act or after its completion but before service of notice under rule 2 of the Second Schedule, an assessee creates a charge on, or parts with possession of, any of his assets in favour of another person (by sale, mortgage, gift, exchange or any other mode of transfer), the charge or transfer is void as against any claim for tax or any other sum payable by the assessee as a result of the proceeding or otherwise.
The section applies only where the tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceed ten thousand rupees in value. "Assets" means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent they do not form part of the stock-in-trade of the assessee's business.
Operative consequences
The charge or transfer is not void if it is made for adequate consideration and without notice of the pendency of the proceeding or of the tax or other sum payable.
It is also not void if made with the previous permission of the Assessing Officer.
The invalidity operates only "as against" the claim for tax or other sum; the section does not declare the transaction void for all purposes.
Stock-in-trade is outside the definition of assets, so ordinary trading sales are not caught.
The protected window closes on service of the notice under rule 2 of the Second Schedule, from which point the recovery procedure of that Schedule takes over.
Status
Section 281 is operative for assessment year 2026-27. It is not omitted or time-limited. The Finance Act, 2026 did not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 499, which refers to notice by the Tax Recovery Officer under the procedure in s. 413 in place of rule 2 of the Second Schedule.
Function in the statutory architecture
Section 281 protects the recovery of tax against transfers made to put assets beyond reach. Where, during the pendency of any proceeding under the Act or after its completion but before service of notice under rule 2 of the Second Schedule, an assessee creates a charge on, or parts with possession of, any of his assets in favour of another person (by sale, mortgage, gift, exchange or any other mode of transfer), the charge or transfer is void as against any claim for tax or any other sum payable by the assessee as a result of the proceeding or otherwise.
The section applies only where the tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceed ten thousand rupees in value. "Assets" means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent they do not form part of the stock-in-trade of the assessee's business.
Operative consequences
Status
Section 281 is operative for assessment year 2026-27. It is not omitted or time-limited. The Finance Act, 2026 did not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 499, which refers to notice by the Tax Recovery Officer under the procedure in s. 413 in place of rule 2 of the Second Schedule.