Last reviewed: 13 November 2026. When an assessment adds income, a penalty notice under section 270A usually follows. The difference between under-reporting (penalty of 50% of the tax) and misreporting (200%) is large, so how the addition is characterised matters as much as the addition itself. For assessment years up to 2026-27, these penalties continue under the 1961 Act, even where initiated after 1 April 2026.
Part of our income-tax notice series. For every notice type, the time limits and the appeal route, start with the complete guide to income-tax notices.
Under-reporting versus misreporting
| Point | Under-reporting (s.270A(2)) | Misreporting (s.270A(9)) |
|---|---|---|
| Examples | Assessed income higher than returned income; addition on estimate or on a debatable view | Misrepresentation or suppression of facts, failure to record investments, false entries, unrecorded receipts |
| Penalty | 50% of tax on under-reported income | 200% of tax on under-reported income from misreporting |
| Immunity under 270AA | Available | Not available under the 1961 Act |
The penalty notice must specify which limb is invoked. A notice that does not state whether the case is under-reporting or misreporting, or the specific clause of section 270A(9), has been held defective by several courts and tribunals.
Exclusions that reduce or remove penalty
- Under-reported income where you offer an explanation that is bona fide and all material facts were disclosed (section 270A(6)(a)).
- Income determined on an estimate, where accounts are correct and complete and the method was regularly followed (section 270A(6)(b)).
- Transfer pricing adjustments made in conformity with the arm's length price where the prescribed documentation was maintained, and the other specified exclusions in section 270A(6).
Immunity under section 270AA
Where the case is under-reporting (not misreporting), you can apply for immunity from penalty and from prosecution under sections 276C and 276CC if you pay the tax and interest within the period in the demand notice and do not file an appeal. The application in Form 68 must be made within one month from the end of the month in which the order was received, and the officer must decide it within one month. Choosing immunity means accepting the addition, so compare the tax and penalty at stake with the strength of an appeal before deciding.
How to reply to a penalty notice
- Check that the notice specifies the limb and clause; object if it does not.
- Show that the addition arose from a debatable issue, an estimate or a bona fide explanation, with disclosure of all material facts in the return or assessment.
- Where an appeal on the addition is pending, request that penalty proceedings be kept in abeyance until it is decided.
- If the addition is deleted in appeal, the penalty falls with it; seek an order to that effect.
2026 changes
For proceedings under the Income-tax Act, 2025 (tax year 2026-27 onwards), the Finance Act, 2026 integrates the under-reporting penalty into the assessment order itself, removes interest on penalty while the first appeal is pending, and extends an immunity route to misreporting cases on payment of additional tax. These do not change the 1961 Act procedure for older years, which section 536 of the 2025 Act preserves.
Frequently asked questions
What is the penalty under section 270A?
Fifty percent of the tax payable on under-reported income, rising to 200% where the under-reporting arises from misreporting as defined in section 270A(9), such as suppression of facts or false entries.
How can I get immunity from penalty under 270A?
Under section 270AA, in an under-reporting case, pay the tax and interest within the time in the demand notice, do not file an appeal, and apply in Form 68 within one month from the end of the month in which you received the order.
Is immunity available for misreporting?
Not under the 1961 Act, which governs assessment years up to 2026-27. The Finance Act, 2026 introduced an immunity route for misreporting on payment of additional tax under the new framework.
Can penalty be levied if the addition is on an estimate?
Section 270A(6)(b) excludes income determined on an estimate where the accounts are correct and complete and the method was regularly employed. Each case depends on the facts.
What if the penalty notice does not specify the limb?
A notice that does not say whether it is under-reporting or misreporting, or which clause of 270A(9) applies, has been held defective in several decisions. Raise this objection in the reply.
We read the notice against your return, AIS and books, tell you what it is really asking, prepare the reply with supporting documents, file it on the portal and follow the matter through to the order and, where needed, appeal. The outcome rests with the tax authority; our work is to put a complete, documented response before it.
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This article is for general information and does not constitute advice on any specific case. Sources: the Income-tax Act, 1961 (which continues to govern assessment years up to 2026-27 under section 536 of the Income-tax Act, 2025), the Income-tax Act, 2025, the Finance Act, 2026 and the CBDT instructions and circulars cited in the text. Time limits run from the date of service of each notice or order; confirm the current position and the exact dates in your notice before acting. Firm details: Somesh Chandak & Associates, Chartered Accountants, Unit 119, 1st Floor, Centura Square IT Park, SG Barve Road, Wagle Estate, Thane West 400604. FRN 158694W.