CBDT’s Revised Penalty Waiver Application : What Businesses Should Review
Introduction : Tax notices rarely arrive at a convenient time. When an assessment finds underreported income, the tax and interest are only part of the bill, because a penalty can follow. The Income Tax Act,2025 gives taxpayers a way to avoid that penalty, and the process has just changed. The CBDT has notified a revised application for seeking a penalty waiver. Here is what businesses need to know.
What Is the Penalty Waiver under Section 440(2)?
Fundamentally, a penalty waiver under Section 440(2) of the Income-tax Act, 2025 is a statutory mechanism whereby the taxpayer receives relief from discretionary penalties and prosecution proceedings.
Instead of undergoing lengthy penalty litigation or risking severe fines, a taxpayer agrees to pay the assessed tax and interest in full, along with a prescribed "additional income tax" (typically set at 100% or 120% of the tax on under-reported income). In exchange for this upfront payment and a commitment not to file an appeal, the tax authorities grant a full waiver of penalties under Section 439 and grant immunity from prosecution.
What has Changed in Revised Form 161?
The Central Board of Direct Taxes has issued the Income - Tax (Sixth Amendment) Rules, 2026, whereby amendments have been made in Rule 231, and the former Form 161 has been revised. This amendment became effective on 9 October 2026 and was published in the official gazette. Two vital changes have been brought through this amendment:
Legal Framework for Waivers: It has amended Rule 231 by adding the word "or waiver" after "imposition." Thus, it has expanded its ambit legally for claiming any relief under Section 440(2) of the Income-tax Act, 2025.
Form No. 161: It has substituted the old framework with a data-based Form 161 whereby penalty relief becomes an audit-based and structured process instead of a vague discretionary claim.
Below is a detailed breakdown of the revised requirements and practical additions inside the form:
1. Specific Applicant Information & Identity Information
The new Form 161 no longer uses only generic entity information; it now requires digital identification information to prevent identity mismatches in the e-filing system:
Applicant's Personal/Contact Information: The application form now requires the validation of the applicant's Permanent Account Number (PAN), official name of the entity, the officially registered address, registered mobile number and active email address.
Integration with System: To facilitate the process of verification, important assessment information will be pre-populated on the portal by taxpayers, but they must verify the same before submission.
2. Disclosure of Assessment Orders & Demand Information
Taxpayers must provide complete information linking the waiver application to the tax order:
Document Identification Number (DIN): All assessment/reassessment orders need to have their document identification numbers.
Notice of Demand Information: Taxpayers have to provide the assessment section as well as the due date of the notice of demand.
3. Classification of Under-Reported Income
As tax calculation is determined by legal classification, Form 161 demands for clear separation between classifications of under-reported additions:
Under-Reporting without Misreporting: Additions not involving any concealment or misrepresentation.
Misreporting [Section 439(11)(a) to (f)]: Involves fact misrepresentation, investments/receipts unrecorded, or unverified claims expenses.
Aggravated Misreporting [Section 439(11)(g)]: Specific cases of high severity misreporting.
4. Separate Calculation of "Additional Tax Payable"
Form 161 demands a separate financial calculation table where there would be a separate calculation of tax liabilities and settlement fee:
Tax Liabilities: Tax and statutory interest assessed/reassessed on income.
100% Additional Tax: Imposed on tax payable on under-reported income due to misreporting Section 439(11)(a) to (f).
120% Additional Tax: Imposed on tax payable on under-reported income under Section 439(11)(g).
5. Proof of Payment Required
To avoid early filing or fake filings, Form 161 demands payment of the total dues and proper disclosure of challans:
BSR code, Date of Deposit, Challan Serial No. and the Exact Amount paid must be provided.
The payments must be made on or before the due date stated in the Notice of Demand.
6. Irrevocable Undertakings and Verification
There is incorporation of an irrevocable and substantive declaration through the use of Digital Signature Certificate (DSC) by an authorised signatory:
No-Appeal Declaration: The declaration that no appeal is made to any appellate body (CIT(A) or ITAT) against the assessment/reassessment order.
Statutory Undertaking: It is a binding undertaking not to file an appeal within the period specified under Section 440(5).
7. Clarification on Post-Imposition Relief ("Waiver")
By inserting "or waiver" into Rule 231, the CBDT clarified that taxpayers are not restricted to applying prior to a penalty order being issued. Relief can now be formally sought even after a penalty order under Section 439 has already been passed, provided all payment conditions and non-appeal undertakings are fully met.
Who can apply?
From the notice and initial information, one may ensure the following points in a business entity’s favour:
Tax authorities have issued an assessment or reassessment order.
The business has not appealed the order.
It can pay the entire amount due within the due date.
No criminal proceedings have started under Chapter XXII of the Act.
The above points will depend upon each case. Hence, for specific eligibility criteria, one should refer to Section 440 and the notification.
Timelines & Statutory Deadlines
In seeking a waiver of penalty, companies need to handle two time limits set out under statute:
The Demand Payment Deadline (Financial Due Date): It is clear from Note 3 of the revised Form 161 that the total obligation for waiver of penalty, which involves the tax assessment, interest rate charged, and either the 100% or 120% additional income tax, must be deposited by the date indicated in the notice of demand (generally 30 days from the receipt of the order). Companies need to take note of this particular deadline after receipt of the order to secure funds.
The Application Filing Deadline (Statutory Cut-Off): Pursuant to section 440(2), Form 161 has to be submitted to the assessing officer within one month from the end of the month in which the order was received.
Documents and evidence to prepare
An organised file helps avoid mistakes and time wastage. The following documents should be prepared and ready;
Copy of the assessment or reassessment order: This is the statutory basis for the tax dispute and will show the additions made by the tax officer and the Document Identification Number (DIN). Notice of demand indicating the due date: This is the deadline within which the tax, interest, and additional tax are supposed to be deposited completely to qualify for the waiver.
Computation of the under-reported income and its classification: The additions will be separated as either under-reported or misreported income for imposition of the appropriate statutory tier penalty.
Computation of the additional income tax: This shows the process through which the additional income tax at either 100% or 120% is calculated.
Challans or any other evidence of payment: This will act as financial evidence that shows the amount of additional tax and assessed liabilities have been paid completely using BSR codes and Challan Serial Numbers.
The signed declarations, including the no-appeal declaration: Provide the legally binding commitment that no appeal has been filed against the order and that the business irrevocably waives its right to litigate.
PAN and current contact details of the applicant or authorised signatory: Ensures proper portal validation, e-verification via Digital Signature Certificate (DSC), and accurate official communication with tax authorities.
Waiver or Appeal - the critical decision
Due to the fact that the form contains an attestation stating that there has not been any appeal filed against the determination, a company has to make its choice between two options. The first option is the payment of additional tax in order to gain certainty and avoid lengthy proceedings. An appeal is another option for those who think the assessment was incorrect, but one which forfeits the waiver option.
Waiver - Application Checklist
Have we received and reviewed the assessment or reassessment order?
Have we noted the due date in the notice of demand?
Have we confirmed that no appeal has been filed?
Is the under–reported income classified correctly?
Is the additional tax calculated as per the revised form?
Is funding arranged for the full payment before the due date?
Do we have proof of payment?
Has the authorised person signed the application and declarations?
Have we confirmed that no prosecution has been initiated?
Has a CA or tax advisor reviewed everything?
Conclusion
Tax dispute management is, in essence, about making difficult trade-offs. The new Form 161 and the new Rule 231 framework have introduced much-needed clarity, transparency, and digitisation to the procedure of penalty waiver. In exchange for the uncertainty of penalty process, the framework offers businesses an additional tax structure, based on which they will be able to obtain closure and immunity from prosecution.
There is a catch, however, to that certainty – you need to sacrifice your right of appeal and pay the additional tax up to 120%.
When pressing the submit button in the e-filing portal, you need to make sure you have considered whether or not the costs of waiver outweigh the potential benefits of an appeal. If your order is built on weak foundations from the perspective of law, then it would be better to pursue an appeal route. For companies that are ready to settle a dispute now and get closure, a proper Form 161 application may help turn a dispute into a closed chapter.
Author: Kajal Sen in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
Endnotes
Income-tax Act, 2025, No. 30 of 2025, § 440 (India), Official Portal
Central Board of Direct Taxes, Notification No. 134/2026, G.S.R. 871(E), Income-tax (Sixth Amendment) Rules, 2026 (Oct. 8, 2026) (amending Rule 231 and substituting Form No. 161), Official Notification
Income Tax Department, Income-tax Act, 2025 Comes into Force from 1 April 2026 (Press Release, Apr. 1, 2026), Press Release
Navasree A.M., CBDT Amends Form 161, Notifies Income Tax (Sixth Amendment) Rules, Taxscan (Oct. 10, 2026), Taxscan Article
India's CBDT Updates Form 161: How to Apply for an Income Tax Penalty Waiver, India Briefing (Oct. 2026), India Briefing Article
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