Section 296 of the Income-tax Act, 2025 — Time-Limit for Completion of Block Assessment (Search Cases)

In plain language

What Section 296 actually says

Section 296 of the Income-tax Act, 2025 fixes the outer time-limit within which the Assessing Officer (AO) must complete a "block assessment" of undisclosed income in search and requisition cases. A block assessment is the special assessment made under Section 294 (procedure for block assessment) after the Income-tax Department conducts a search (raid) under Section 247 or makes a requisition under Section 248. Section 296 makes sure the taxpayer is not left hanging indefinitely — it puts a legal deadline on the department.

In simple words: once your premises are searched, the tax office has a fixed clock running. If they do not pass the block assessment order within that period, the assessment becomes time-barred (invalid).

The core time-limit (Section 296(1))

• Base limit — 12 months. The order under Section 294 must be passed within twelve months from the end of the quarter in which the last of the search authorisations was executed or the requisition was made. Note it runs from the end of the quarter, not the end of the month — this is a change in drafting style from the old law.
• Overrides Section 286. The section opens with a non-obstante flavour — the general limitation in Section 286 (time-limit for ordinary assessments) does not apply; the block-assessment clock in Section 296 governs instead.

When the clock gets extended

• +1 month for extended return (13 months). Under Section 294, the AO gives you time (up to 60 days) to file the block-period return of undisclosed income. If that period is further extended by 30 days, the words "twelve months" are read as "thirteen months" for sub-sections (1) and (5).
• +12 months for a transfer-pricing reference. If, during the assessment, the AO makes a reference to the Transfer Pricing Officer under Section 166(1), the completion period is extended by a further twelve months. This applies both to the searched person (sub-section 2) and to the "other person" cases (sub-section 6).

Periods that are excluded from the clock

• Handover of seized material — up to 180 days. The period (not exceeding one hundred and eighty days) beginning when the search is initiated / requisition made and ending when the seized assets and material are handed over to the AO having jurisdiction over you is excluded from the limitation count. This recognises that the searching wing and the assessing wing are often different, and time is lost in transfer.
• Month-end rounding. If, after excluding that handover period, the remaining limitation ends part-way through a month, the deadline is pushed to the end of that month. This avoids disputes over odd part-month dates.

The "other person" (third-party) situation — Section 296(5)

During a search on Person A, the department may find undisclosed income that actually belongs to Person B. Section 295 lets the AO hand that material to the AO having jurisdiction over Person B, who then issues a notice under Section 294. For such an "other person":

• The limit is twelve months from the end of the quarter in which the Section 294 notice (issued in pursuance of Section 295) was served on that other person.
• The same +12-month transfer-pricing extension (Section 296(6)) and the 13-month rule for an extended return apply.

Who this applies to

• Any person searched under Section 247 or covered by a requisition under Section 248 on or after the date block assessment provisions apply.
• Any third person whose undisclosed income surfaces in someone else's search (via Section 295).
• It matters most to businesses, high-net-worth individuals, and professionals who face search action, and to their advisers tracking whether a notice or order is validly within time.

Why the deadline matters in practice

• Finality for the taxpayer. A block assessment passed after the Section 296 deadline is void; courts routinely quash time-barred search assessments.
• Interacts with Section 294 (procedure) and Section 301 (tax on block period at a flat rate) and Section 295 (other persons). Section 296 is the timing backbone that ties these together.
• Documentation is key. Because the clock depends on the date of the last authorisation and the handover date, taxpayers should preserve panchnamas, seizure memos and handover records to compute limitation accurately.