Waiver of penalty and immunity from prosecution

Section 440 — WAIVER OF PENALTY AND IMMUNITY FROM PROSECUTION

Section 440 of the Income-tax Act, 2025 corresponds to s. 270AA (FA 2016) of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Sub-sections (1) to (4) were substituted by the Finance Act, 2026, w.e.f. 1-4-2026. An assessee may apply to the Assessing Officer for waiver of penalty levied under s.439 and immunity from proceedings under s.478 (wilful attempt to evade tax) or s.479 (failure to furnish returns), if: (a) the tax and interest under the order of assessment under s.270(10) or reassessment under s.279 are paid within the period in the notice of demand; (b) where the penalty was levied for misreporting under s.439(11)(a) to (f), additional income-tax of 100 per cent of the tax payable on the under-reported income is paid within that period, in lieu of the penalty; (c) where the penalty was levied under s.439(11)(g), that is, on income referred to in s.195(1)(b) (unexplained income under ss.102 to 106 determined by the Assessing Officer), the additional income-tax is 120 per cent; and (d) no appeal has been filed against the assessment or reassessment order or the levy of penalty. Before the substitution, immunity was barred altogether where penalty was initiated for misreporting (former s.440(4)), as under s.270AA(3) of the 1961 Act. Waiver or immunity is now barred only where a proceeding has been initiated under Chapter XXII (s.440(4)).

PRACTITIONER PLANNING NOTES

• Strategic choice: trade off appeal rights vs penalty immunity; usually advantageous when assessment is on weak ground but penalty risk is high.
• The application must be made within one month from the end of the month in which the order is received (s.440(2)); the Assessing Officer grants waiver and immunity only after the appeal period under s.358(3)(a) has expired (s.440(3)), and must accept or reject the application within three months from the end of the month of its receipt (s.440(5)), after a hearing if rejecting (s.440(6)).
• Since 1-4-2026 misreporting cases are covered: the price of waiver is additional income-tax of 100 per cent of the tax on the under-reported income (s.440(1)(b)), or 120 per cent where the penalty relates to s.195(1)(b) income (s.440(1)(c)), against a penalty of 200 per cent under s.439(10).

CROSS-REFERENCES

• s. 439 (under-reporting or misreporting -- master penalty).
• s. 440 (immunity application).
• s. 469 or 470 (waiver or reasonable-cause).
• s. 471 or 472 (procedure or limitation).