Section 155 and Section 156 of Income Tax Act 1961: Other Amendments and Notice of Demand
Section 155 of the Income-tax Act, 1961 contained special amendment mechanisms for specified situations where an assessment, deduction, credit, loss, capital gain or another tax consequence required adjustment after a later event. Section 156 governed the notice of demand when tax, interest, penalty, fine or another sum became payable under an order.
Section 155: Other Amendments
Section 155 supplemented the general rectification power in Section 154. Instead of dealing only with a mistake apparent from the record, Section 155 identified particular later events or statutory circumstances in which an Assessing Officer could or was required to amend an earlier assessment, order or intimation. Many sub-sections are historical or apply only to specified years, transactions or deductions, so the relevant sub-section must be matched to the facts and the assessment year.
Important categories covered by Section 155
| Subject | Nature of special amendment |
|---|---|
| Partners, firms, associations and members | Specified consequential amendments where later assessment or alteration of the firm, association or body changes an amount relevant to a partner or member. Some provisions are confined to older assessment years. |
| Carry-forward of loss or depreciation | Consequential recomputation for succeeding years where a later proceeding changes a loss or depreciation amount that had been carried forward and set off. |
| Investment allowance, development rebate and development allowance | Historical provisions permitting recomputation when statutory conditions attached to an allowance were subsequently breached. |
| Capital gains | Specified amendments where later events affect exemption, stamp-duty valuation, compensation or other statutory capital-gain consequences. |
| Foreign tax credit | Specified amendment where foreign tax credit was earlier withheld because the foreign tax was disputed and the dispute was later settled subject to the statutory conditions. |
| Patent royalty deduction | Specified recomputation where a patent-related deduction under Section 80RRB was affected by a later statutory order concerning the patent or patentee. |
| Other later events | Section 155 also contained several targeted provisions inserted or amended over time for particular deductions, credits, transactions and subsequent events. |
Relationship with Section 154
Several sub-sections of Section 155 expressly applied Section 154, so far as may be, while prescribing a special starting point for the four-year period or another tailored limitation rule. The applicable limitation therefore cannot safely be determined by reading Section 154 alone; the particular sub-section of Section 155 must also be checked.
Transfer Pricing: Later-year Consequential Amendment
The Finance Act, 2025 inserted Section 155(21) for the specified transfer-pricing mechanism. Broadly, where the arm's length price is determined for an international transaction or specified domestic transaction under Section 92CA(3), and the Transfer Pricing Officer declares the option exercised by the assessee under Section 92CA(3B) to be valid, the Assessing Officer may recompute the total income of the assessee for the relevant consecutive previous years in accordance with the statutory conditions. This provision forms part of the later version of Section 155 and should be applied from its prescribed effective date.
Section 156: Notice of Demand
Section 156(1) provided that when tax, interest, penalty, fine or any other sum became payable in consequence of an order under the Income-tax Act, 1961, the Assessing Officer was to serve a notice of demand in the prescribed form specifying the amount payable.
Where a sum was determined to be payable under an intimation covered by Section 143(1), Section 200A(1) or Section 206CB(1), the relevant intimation itself was deemed to be a notice of demand for the purposes of Section 156. A separate demand notice was therefore not required merely to duplicate such a statutory intimation.
Effect of a notice of demand
The notice communicates the quantified amount payable under the underlying order or deemed demand. The consequences of non-payment, the ordinary period for payment, interest for default, recovery and available remedies are governed by the relevant provisions of the Act and must be read with the underlying assessment, penalty or other order.
Eligible Start-up ESOP Tax
Section 156(2) contained a special timing rule where the assessee's income included the specified perquisite from eligible start-up securities or sweat equity shares. Under the 1961 Act provision, the relevant tax or interest included in the demand became payable within fourteen days after the earliest of the statutory events: expiry of the prescribed deferral period, sale of the specified security or sweat equity share, or cessation of employment with the employer that allotted or transferred it.
Sections 288 and 289 under the Income-tax Act, 2025
From 1 April 2026, the corresponding provision for special consequential amendments is Section 288 of the Income-tax Act, 2025. It consolidates and restates the applicable amendment situations in the structure of the new Act. For current matters, the relevant row or condition in Section 288 should be checked rather than relying on the numbering and historical sub-sections of Section 155.
Section 289 of the Income-tax Act, 2025 is the current provision for a notice of demand. When tax, interest, penalty, fine or another sum is payable because of an order under the 2025 Act, the Assessing Officer serves a notice of demand in the prescribed form specifying the amount payable. Where a sum is determined to be payable under Sections 270 or 399, the statutory intimation is deemed to be a notice of demand.
Eligible Start-up Securities under Section 289(3)
The 2025 Act continues a special rule for eligible start-up securities and sweat equity. Where the statutory conditions are met, the tax or interest on the specified perquisite included in the notice of demand is payable within fourteen days after the earliest of: expiry of sixty months from the end of the relevant tax year, sale of the security or sweat equity share, or cessation of employment with the employer that allotted or transferred it.
Practical Points
- First identify whether the matter is governed by the Income-tax Act, 1961 or the Income-tax Act, 2025.
- For an amendment, identify the exact statutory event and the particular provision that authorises consequential amendment.
- Check the special limitation rule in the relevant provision instead of assuming that the ordinary Section 154 or Section 287 period always applies.
- For a demand, read the notice together with the underlying assessment, rectification, penalty or other order that creates the liability.
- Where an intimation is statutorily deemed to be a notice of demand, its legal effect should be considered accordingly.
Official Income-tax Resources
Refer to the official Income Tax Department tax laws portal, the official Income-tax Act, 2025 resources and transition guidance, the official Income-tax Act, 2025 PDF, and the Income Tax e-Filing portal.
Updated: 29 September 2026. The applicable amendment or demand provision depends on the relevant tax or assessment year, underlying order, later event, limitation rule and statutory transition provisions.