Section 297 of the Income-tax Act, 2025 — Certain Interests and Penalties Not to Be Levied in Block Assessment of Search Cases

In plain language

What Section 297 actually says

Section 297 of the Income-tax Act, 2025 is a short but important protection built into the block assessment regime for search and requisition cases. The exact wording is:

"Interest under section 423, 424 or 425 or penalty under section 439 shall not be levied or imposed upon the assessee for the undisclosed income assessed or reassessed for the block period."

In plain English: when the Income-tax Department carries out a search (raid) under Section 247 or a requisition under Section 248, and then assesses your undisclosed income for the block period, it cannot pile the ordinary interest and the ordinary under-reporting/misreporting penalty on top of that undisclosed income. Those specific charges are switched off for that income. This is the 2025 Act's re-numbered successor to Section 158BF of the Income-tax Act, 1961.

Why this relief exists

• Undisclosed income is already taxed at a penal 60%. Income of the block period is charged to tax at a flat, deterrent rate of 60% (plus surcharge and cess) under the block-assessment charging provision — far higher than normal slab rates.
• No double punishment. Because the 60% rate is itself penal, Parliament decided it would be excessive to also add regular interest for late advance tax/return and the 50%–200% under-reporting/misreporting penalty on the very same income. Section 297 prevents that stacking.

Which charges are switched off

• Section 423 — interest for default in furnishing the return of income (the 2025 equivalent of the old Section 234A), normally 1% per month.
• Section 424 — interest for default in payment of advance tax (equivalent of old Section 234B), normally 1% per month.
• Section 425 — interest for deferment of advance tax instalments (equivalent of old Section 234C).
• Section 439 — penalty for under-reporting (50% of tax) and misreporting (200% of tax) of income (equivalent of old Section 270A).

Who it applies to

Section 297 applies to any assessee — individual, HUF, firm, company, LLP — who is subjected to a block assessment following a search or requisition. It is not a general amnesty. The relief attaches only to the undisclosed income of the block period, i.e. income and assets unearthed by the search that were not previously disclosed.

Key conditions and limits

• Only for the block period. The block period covers the six tax years immediately preceding the year of search, plus the broken part of the current year up to the date the search/requisition is executed.
• Only for undisclosed income. The shield covers the income assessed or reassessed under the block-assessment procedure — not your regular declared income.
• Regular assessments are unaffected. For a normal (non-search) year, Sections 423, 424, 425 and 439 continue to apply fully. Section 297 gives you no protection there.
• Other charges may still apply. Interest or penalties under other provisions, and any block-specific interest/penalty machinery for late filing of the block return, are outside Section 297 and can still bite.

How it interacts with the rest of the block-assessment chapter

Section 297 sits inside the search-and-seizure block-assessment scheme. It works alongside the provisions that define undisclosed income, that lay down the block-assessment procedure, and the 60% charging rate. The logic is a package: high flat tax, but relief from the normal interest and the standard under-reporting penalty. It also plays off against Section 298, which deals with how other Act provisions apply to block assessment.

Practical implications for taxpayers

• Model the real cost as roughly 60% + surcharge + cess on undisclosed income — not 60% plus months of interest plus a 50%–200% penalty.
• Cooperate and file the block return properly. The relief in 297 targets specific charges; separate consequences can still follow for non-cooperation or late block filing.
• Keep clean records. The best protection is to have nothing classed as "undisclosed" in the first place — Section 297 is damage-control, not a planning tool.

Section 297 takes effect from 1 April 2026 and operates prospectively; it does not create refunds for earlier years.