Section 440 · Penalties
Section 440 of the Income-tax Act, 2025 — Immunity from Penalty and Prosecution
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXI
📜 What the law says — Section 440, Income-tax Act 2025
440. [(1) An assessee may make an application to the Assessing Officer to grant
waiver of penalty levied under section 439 and immunity from initiation of
proceedings under section 478 or 479 on fulfilment of the following conditions: ––
(a) the tax and interest payable as per the order of assessment under section
270(10) or reassessment under section 279, has been paid within the period
specified in the notice of demand;
(b) where penalty has been levied under the circumstances referred to in section
439(11)(a) to (f), additional income-tax amounting to 100% of the amount
of tax payable on under-reported income has been paid within the period
specified in the notice of demand, in lieu of such penalty;
(c) where penalty has been levied under the circumstances referred to in sec-
tion 439(11)(g), additional income-tax amounting to 120% of the amount
of tax payable on under-reported income has been paid within the period
specified in the notice of demand, in lieu of such penalty; and
7a. Inserted by the Finance Act, 2026, w.e.f. 1-4-2026.
8. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to their substitution, sub-sections
(1), (2), (3) and (4) read as under :
“(1) An assessee may make an application to the Assessing Officer for granting immunity
from penalty under section 439 and initiation of proceedings under section 478 or section
479, if––
(a) the tax and interest payable as per the order of assessment or reassessment under
section 270(10) or section 279, has been paid within the period specified in the notice
of demand; and
(b) no appeal against the order referred to in clause (a) has been filed.
(2) An application referred to in sub-section (1) shall be made within one month from the
end of the month in which the order referred to in clause (a) of the said sub-section has been
received, in such form and manner as may be prescribed.
(3) The Assessing Officer, on fulfilment of the conditions as specified in sub-section (1), and
after the expiry of the period of filing appeal as specified in section 358(3)(a), shall grant
immunity from penalty under section 439 and initiation of proceedings under section 478
or 479.
(4) No immunity under sub-section (3) shall be granted if penalty under section 439 has been
initiated un
In plain language
What Section 440 actually deals with
Section 440 of the Income-tax Act, 2025 gives an honest, cooperative taxpayer a legal escape route from penalty and criminal prosecution after an assessment or reassessment goes against them — provided they accept the addition, pay up, and do not litigate. It is the direct successor to Section 270AA of the Income-tax Act, 1961, carried into the new law with the same policy and only updated cross-references.
In plain terms: if the Assessing Officer (AO) adds income to your return and raises a demand, you normally face a penalty under Section 439 (50% or 200% of the extra tax) and, in serious cases, prosecution. Section 440 lets you say to the department: "I accept this order, I will pay the tax and interest, and I will not appeal — in return, please waive the penalty and do not prosecute me." If you meet the conditions, the AO is bound to grant that relief.
Who can use it
- Any assessee — individuals, HUFs, firms, companies, LLPs — who has received an assessment or reassessment order with a tax demand.
- Those who want certainty and closure rather than years of appeals.
- Taxpayers whose addition is not worth fighting, or where the cost/risk of litigation outweighs the disputed penalty.
The key conditions (all must be satisfied)
- Full payment: The tax and interest as per the assessment/reassessment order must be paid within the time allowed in the notice of demand.
- No appeal: You must not have filed an appeal against that order. Choosing Section 440 means giving up your right to litigate that order.
- Timely application: The immunity application must be filed within one month from the end of the month in which the order is received, in the prescribed Form 161, duly verified.
- No prosecution already launched: No relief is available if proceedings under Chapter XXII (offences and prosecution) have already been initiated.
What relief you get
- Waiver of penalty under Section 439 — the under-reporting / misreporting penalty (50% or 200% of tax).
- Immunity from prosecution under Section 478 (wilful attempt to evade tax, successor to old Section 276C) and Section 479 (failure to furnish return in time, successor to old Section 276CC).
How the process runs
- You file Form 161 with the AO within the one-month window.
- The AO waits until the appeal-filing period under Section 358(3)(a) has expired (so it is confirmed you did not appeal).
- On being satisfied the conditions are met, the AO grants waiver of penalty and immunity from prosecution.
- Once immunity is granted, the order is final — you cannot then appeal or revise it.
The big 2026 change — misreporting now covered
Historically this immunity did not extend to misreporting cases. Under old Section 270AA, if the penalty flowed from misreporting (concealment, false entries, suppression), immunity was blocked. The Finance Act, 2026 expanded Section 440 so that immunity can now be sought even where under-reporting arises in consequence of misreporting, subject to the existing conditions and effective for tax year 2026-27 onwards (from 1 April 2026). This is a genuinely taxpayer-friendly widening — but readers should verify the exact final wording, as the scope and any settlement-tax conditions were still being finalised.
Practical implications
- Section 440 is a trade-off, not a free pass: you pay 100% of the tax and interest and forfeit your appeal rights, in exchange for zero penalty and no criminal case.
- Best used when the addition is small or hard to defend and you value peace over principle.
- Watch the clock — the one-month deadline is strict; miss it and the route closes.
- Do not pay late — payment after the demand-notice deadline can disqualify you.
💡 Example
Worked example 1 — under-reporting. Mr. Arjun, a salaried professional in Jaipur, files income of ₹18,00,000. The AO finds an unreported interest income and assesses income at ₹20,00,000. Extra tax on the ₹2,00,000 addition is roughly ₹62,400 (30% + cess). The Section 439 under-reporting penalty at 50% of that tax would be about ₹31,200. If Arjun pays the ₹62,400 tax plus interest within the demand-notice period, files Form 161 within one month, and does not appeal, the AO grants immunity — his penalty of ₹31,200 is waived entirely and no prosecution can follow.
Worked example 2 — misreporting (post-April 2026). Verma Traders (a firm) has ₹5,00,000 of expenses disallowed as unsubstantiated, treated as misreporting. Extra tax at 30% is ₹1,50,000; the 200% misreporting penalty under Section 439 would be a steep ₹3,00,000. Because the Finance Act, 2026 widened Section 440 to cover misreporting from 1 April 2026, the firm can now pay the ₹1,50,000 tax and interest, forgo appeal, and apply in Form 161 — potentially escaping the ₹3,00,000 penalty. Before this change, such a misreporting penalty could never be immunised.
A relatable story. Priya, a first-time freelancer, forgot to report a ₹1,20,000 platform payout. Her assessment added it back with a demand of about ₹37,000 tax plus interest, and a penalty notice loomed. Her CA explained she had two roads: fight it in appeal for years, or take Section 440. Priya paid the demand within the notice period, filed Form 161 within the month, and skipped the appeal. Weeks later the AO waived the penalty and confirmed no prosecution. Priya slept easy — one honest slip, cleanly closed, for the price of the tax she genuinely owed.
| Feature | Section 270AA (Act of 1961) | Section 440 (Act of 2025) |
|---|
| Nature of relief | Immunity from penalty & prosecution | Waiver of penalty & immunity from prosecution |
| Penalty section covered | Section 270A | Section 439 |
| Prosecution sections covered | Sections 276C & 276CC | Sections 478 & 479 |
| Pay tax & interest? | Yes, within demand-notice time | Yes, within demand-notice time |
| File appeal? | No appeal permitted | No appeal permitted |
| Application deadline | 1 month from end of month order received | 1 month from end of month order received |
| Application form | Form 68 | Form 161 (as prescribed) |
| Misreporting covered? | No — excluded | Extended to cover misreporting (Finance Act 2026, from 1 Apr 2026) — verify final scope |
| Under-reporting penalty rate (ref.) | 50% of tax (270A) | 50% of tax (439) |
| Misreporting penalty rate (ref.) | 200% of tax (270A) | 200% of tax (439) |
Related sections
Section 439 — Penalty for under-reporting and misreporting of income Section 478 — Wilful attempt to evade tax (prosecution) Section 479 — Failure to furnish return of income (prosecution) Section 358 — Appeals to the Joint Commissioner (Appeals) / appeal timelines Section 438 — Set off and withholding of refunds in certain cases Section 491 — Prosecution only at the instance of senior tax authority
Forms under this section
Income-tax forms (2025) prescribed under Section 440:
Frequently asked questions
Does Section 440 waive the tax I owe?
No. Section 440 only waives the penalty and grants immunity from prosecution. You must still pay the full tax and interest as per the assessment order within the demand-notice time — that payment is a precondition for relief.
What is the deadline to apply under Section 440?
You must file the application in Form 161 within one month from the end of the month in which you receive the assessment or reassessment order. This deadline is strict, so act quickly after getting the order.
Can I still appeal if I take immunity under Section 440?
No. Not filing an appeal is a core condition. If you opt for Section 440 immunity you give up your right to appeal that order, and once immunity is granted the order becomes final.
Is misreporting of income covered under Section 440?
Under the earlier framework (old Section 270AA) misreporting was excluded, but the Finance Act, 2026 widened Section 440 to cover under-reporting arising from misreporting, effective from 1 April 2026. Confirm the exact final conditions before relying on it.
What is the 2025 Act equivalent of the old Section 270AA and Form 68?
Section 440 of the Income-tax Act, 2025 is the successor to Section 270AA of the 1961 Act, and the application is made in Form 161 (replacing the old Form 68).
Can I get immunity if prosecution has already started?
No. If proceedings under Chapter XXII (offences and prosecution) have already been initiated against you, no waiver or immunity can be granted under Section 440.
When does the Assessing Officer actually grant the immunity?
The AO grants waiver and immunity after the appeal-filing period under Section 358(3)(a) has expired, once satisfied that you paid the demand and did not appeal — ensuring you have genuinely accepted the order.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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