Section 158BF and 158BFA: Interest and Penalty in Block Assessment

Sections 158BF and 158BFA formed part of Chapter XIV-B of the Income-tax Act, 1961 dealing with the special procedure for assessment of search cases. The provisions were substantially recast for the block-assessment regime introduced for searches and requisitions from 1 September 2024. From 1 April 2026, the Income-tax Act, 2025 is the principal income-tax statute, with corresponding provisions in sections 297 and 298.

Updated: 29 September 2026

Meaning and scope

Section 158BF deals with specified interest and penalty that are not separately levied on undisclosed income assessed or reassessed for the block period. Section 158BFA deals with interest for delay or failure in furnishing the block return and penalty in specified block-assessment cases, together with safeguards and limitation provisions.

A block assessment is the special assessment mechanism applicable to search and requisition cases. Under the regime introduced from 1 September 2024, the block period broadly covers the six assessment years preceding the previous year in which the search is initiated or requisition is made, together with the specified part of the current previous year up to the last authorisation execution date.

Section 158BF: Certain interests and penalties not to be levied or imposed

The purpose of the provision was to prevent the specified ordinary interest and under-reporting penalty provisions from being duplicated in respect of undisclosed income that was dealt with under the special block-assessment framework.

Current equivalent: section 297 of the Income-tax Act, 2025

Section 297 carries forward this rule using the renumbered provisions of the 2025 Act. It provides that interest under sections 423, 424 or 425, or penalty under section 439, is not to be levied or imposed upon the assessee for undisclosed income assessed or reassessed for the block period.

Section 158BFA: Levy of interest and penalty in certain cases

Interest for delayed or non-filed block return

Under the recast section 158BFA, where the return of undisclosed income required by the block-assessment notice was not furnished within the specified time, or was not furnished, simple interest was payable at 1.5 per cent for every month or part of a month on the tax on undisclosed income determined under the block assessment. The interest period ran from the day immediately after expiry of the time specified in the notice until completion of the relevant block assessment.

Penalty on undisclosed income

The Assessing Officer or Commissioner (Appeals) could direct payment of a penalty equal to 50 per cent of the tax leviable on the undisclosed income determined under the block assessment, subject to the statutory conditions and exceptions.

Conditions protecting income disclosed in the block return

The statutory protection applied, subject to the provision, where the person furnished the prescribed block return, paid the tax payable on that return or offered seized money for adjustment, furnished evidence of tax payment with the return, and did not appeal against the assessment of the part of income shown in that return. Where the undisclosed income determined exceeded the income shown in the return, the statutory protection did not extend to the excess portion.

Opportunity of hearing and approval

A penalty order could not be made without giving the assessee a reasonable opportunity of being heard. Under the recast provision, where the specified lower-ranking authority proposed a penalty exceeding Rs. 2,00,000, previous approval of the prescribed Additional Commissioner, Additional Director, Joint Commissioner or Joint Director was required.

Limitation for penalty order

Section 158BFA also prescribed limitation periods for passing the penalty order, with different rules where the block assessment was in appeal, revision, or another category. Certain periods, including qualifying court-stay periods and the time taken for a rehearing opportunity, were excluded while computing limitation, with statutory minimum-extension rules where applicable.

Section 298 of the Income-tax Act, 2025

Section 298 is the current corresponding provision. It retains the principal structure of the recast section 158BFA: interest at 1.5 per cent per month or part of a month for failure to furnish the required return of undisclosed income within the notice period, a penalty equal to 50 per cent of the relevant tax, specified protection where the block return and tax-payment conditions are satisfied, hearing and approval safeguards, and statutory time limits for penalty proceedings.

For the 2025 Act, the block return notice is referenced through section 294(1)(a), and the undisclosed income determined in block assessment is referenced through section 294(1)(c).

Transition from the Income-tax Act, 1961 to the Income-tax Act, 2025

The Income-tax Act, 2025 came into force from 1 April 2026. Its repeal and savings provision, section 536, preserves the operation of the earlier law for specified earlier periods, pending proceedings, rights, liabilities and other saved matters. Accordingly, whether section 158BF or 158BFA of the 1961 Act, or sections 297 and 298 of the 2025 Act, governs a particular matter depends on the relevant tax period, search or requisition, proceeding and the applicable transition provisions.

Historical position

The earlier version of Chapter XIV-B applied to the former block-assessment system and contained materially different wording, including a different penalty structure and references to provisions that were later amended or replaced. That historical text may still be relevant to litigation or proceedings saved under the applicable law, but it should not be treated as the general current rule for a new block-assessment matter.

Official resources

For the authoritative statutory text and current departmental guidance, consult the Income Tax Department - Tax Laws and Rules, the Income Tax e-Filing Portal, and India Code. The Income Tax Department also provides guidance for filing the block-assessment return in Form ITR-B.

This page is a general legal information resource. Statutory amendments, savings provisions and facts of an individual proceeding should be checked before applying any provision.