Big Relief for Taxpayers in Income Tax Search and Requisition Cases as Government Amends the Finance Bill 2025
The Indian government has brought significant relief to taxpayers through amendments in the Finance Bill 2025 concerning income tax search and requisition cases. The amendment modifies Section 158BA of the Income Tax Act, shifting the focus from assessing “total income” to only assessing “total undisclosed income” during a tax search. This change is part of the government’s broader efforts to ensure fair taxation and prevent unnecessary harassment of taxpayers.
Key Amendment in Section 158BA
The Finance Bill 2025 has altered Section 158BA, which deals with the assessment of undisclosed income as a result of a search or requisition operation. Previously, the term “total income” was used, which created confusion regarding whether disclosed income was also subject to reassessment.
The revised section now explicitly states that only undisclosed income identified during the search will be assessed. This change ensures that taxpayers who have already disclosed their income properly will not be subject to redundant scrutiny and reassessment.
Statement from the Government on the Amendment
The government clarified its stance on the amendment through an official statement:
“The word ‘total income’ has been replaced with ‘total undisclosed income’ in the marginal heading and in sub-section (1) and sub-section (7) of Section 158BA. The concept of assessing total income has been replaced with the assessment of undisclosed income, reinforcing that the primary goal of a tax search is to identify income that has not been disclosed.”
How Taxpayers Will Benefit from the Amendment
This amendment provides significant clarity and relief to taxpayers, especially in cases of income tax searches and requisition proceedings. The key benefits of this change include:
- Scope Limited to Undisclosed Income
- Earlier, there was a risk that already declared income could be reassessed in search cases.
- Now, only undisclosed income found during searches will be subject to tax assessments.
- Elimination of Unnecessary Harassment
- Many taxpayers faced lengthy scrutiny and reassessment despite already filing their income tax returns.
- The amendment removes ambiguity, ensuring taxpayers will not be penalized for income they have already reported.
- Encouragement of Voluntary Compliance
- The change promotes a trust-based approach, encouraging taxpayers to accurately report their income in regular ITR filings.
- The government now assumes good faith in taxpayers unless evidence suggests otherwise.
Changes in Chapter XIV-B: Focus Only on Undisclosed Income
Chapter XIV-B of the Income Tax Act lays down the special procedure for assessing undisclosed income in search cases. With the new amendment, the chapter will now focus exclusively on undisclosed income and will not interfere with income already disclosed in regular tax returns.
According to the Income Tax Department:
“The concept of assessment of total income has been replaced with the assessment of undisclosed income. This reflects a paradigm shift, where the primary objective of a search or requisition is to identify income that has not been disclosed, rather than scrutinizing all income.”
Block Income Tax Return and Filing Process
Under the revised rules, taxpayers must file a block ITR (Income Tax Return) if they receive a notice under Section 158BC. The deadline for filing this block return is usually within 60 days from the issuance of the notice.
The government now expects taxpayers to report their regular income in the block ITR and ensures that only unreported earnings will be assessed under the search process.
Expert Opinions on the Amendment
CA Ashish Niraj, Partner, A S N & Company
“This amendment is a welcome step from the perspective of taxpayers. In the Budget 2025, the Finance Minister had already mentioned a ‘trust-first, scrutinize-later’ approach. By replacing ‘total income’ with ‘undisclosed income’ in Chapter XIV-B, the government is demonstrating its faith in taxpayers. The scope of search-based assessments has now been narrowed, ensuring that only unreported income is targeted.”
Mihir Tanna, Associate Director, S.K Patodia & Associates LLP
“Previously, the use of the term ‘total income’ created ambiguity. It led to situations where even declared income was subjected to search-based assessments. The new amendment now brings clarity and relief, ensuring that only actual undisclosed income will be examined. This change protects taxpayers from unnecessary scrutiny and helps streamline income tax searches.”
Final Takeaway: A Positive Step for Taxpayers
The Finance Bill 2025’s amendment to Section 158BA marks a significant shift in India’s tax administration, aligning it with global best practices of focusing only on undisclosed income in search cases.
Key Impact: Taxpayers can now be assured that properly disclosed income will not be reassessed in search operations.
Encouraging Compliance: The amendment strengthens trust in the tax system and encourages voluntary income disclosure.
Reduced Litigation: The clarity brought by this amendment reduces disputes and unnecessary tax demands.
With this reform, the government is making income tax searches more targeted and fair, ensuring that honest taxpayers are not burdened while still cracking down on tax evasion effectively.
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