§ 298
Chapter XVI — Procedure For Assessment
Levy of interest and penalty in certain cases. [S. 158BFA of the 1961 Act]
Income-tax Act, 2025
If a taxpayer fails to file the return of undisclosed income within the time specified in the notice under section 294(1)(a), they must pay simple interest at 1.5% per month on the tax due, calculated from the day after the deadline until the assessment is completed.
The tax authority may also impose a penalty equal to 50% of the tax liability on the undisclosed income, unless the taxpayer has filed the return, paid the tax (or offered seized money), provided proof of payment, and not appealed the assessment.
- If the undisclosed income exceeds the amount reported, the penalty applies only to the excess.
- Penalty orders require a hearing, must be signed by senior officials (with higher approval for amounts over ₹200,000), and can be issued only after specified waiting periods (typically after the financial year ends or six months after the appeal/revision order).
📜 Official text of the section +
298. (1) Where the return of undisclosed income as required under a notice under
section 294(1)(a), is not furnished within the period specified in such notice,
or is not furnished, then,—
( a) the assessee shall be liable to pay simple interest at the rate of 1.5%
of the tax on undisclosed income determined under clause ( c) of said
sub-section;
( b) the interest in clause (a) shall be paid for every month or part of a month
comprised in the period commencing on the day immediately following
the expiry of the time specified in said notice, and ending on the date of
completion of assessment under clause (c) of said sub-section.
(2) The Assessing Officer or the Commissioner (Appeals) in the course of any pro-
ceedings under this Part, may direct that the person shall pay by way of penalty
a sum which shall be equal to 50% of tax so leviable in respect of the undisclosed
income determined by the Assessing Officer under section 294(1)(c).
(3) The order imposing penalty under this section or section 444(1) or 450 or 451
or 453 shall not be made for the block period in respect of a person, if—
( a) such person has furnished a return under section 294(1)(a);
( b) the tax payable on the basis of such return has been paid or, if the assets
seized consist of money, the assessee offers the money so seized to be
adjusted against the tax payable;
( c) evidence of tax paid is furnished along with the return; and
( d) an appeal is not filed against the assessment of that part of income which
is shown in the return.
(4) The provisions of sub-section (3) shall not apply where the undisclosed
income determined by the Assessing Officer is in excess of the income shown
in the return and in such cases the penalty shall be imposed on that portion of
undisclosed income determined, which is in excess of income shown in the return.
(5) The order imposing a penalty under sub-section (2) shall not be made—
( a) unless an assessee has been given a reasonable opportunity of being
heard;
( b) by the Deputy Commissioner or Assistant Commissioner or the Deputy
Director or Assistant Director, where penalty exceeds ` 200000 except with
the previous approval of the Additional Commissioner or the Additional
Director or the Joint Commissioner or the Joint Director;
( c) in a case where the assessment is the subject-matter of an appeal under
section 357 or 362,—
( i) after the expiry of the financial year in which the proceedings, in
the course of which action for the imposition of penalty has been
initiated, are completed; or
( ii) six months from the end of the financial year in which the order of
the Commissioner (Appeals) or the Appellate Tribunal is received
by the jurisdictional Principal Commissioner or Commissioner,
whichever period expires later;
( d) in a case where the assessment is the subject-matter of revision under
section 377, after the expiry of six months from the end of the financial
year in which such order of revision is passed;
( e) in any case other than those mentioned in clauses (c) and (d), after the
expiry of the financial year in which the proceedings, in the course of
which notice for the imposition of penalty has been issued, are completed,
or six months from the end of the financial year in which notice for
imposition of penalty is issued, whichever period expires later.
(6) In computing the period of limitation under this section, the following period
shall be excluded—
( a) the time taken in giving an opportunity to the assessee to be re-heard
under section 244(2); or
( b) the period commencing on the date on which stay on proceeding under
sub-section (2) was granted by an order or injunction of any court and
ending on the date on which certified copy of the order vacating the stay
was received by jurisdictional Principal Commissioner or Commissioner.
(7) Where immediately after the exclusion of the period referred to in sub-section
(6), the remaining period of limitation referred to in sub-section (5) available to
the Assessing Officer for making an order under sub-section (2) of this section is
less than sixty days, such remaining period shall be extended to sixty days and the
aforesaid period of limitation shall be deemed to be extended accordingly.
(8) If after exclusion of the period referred to in sub-section (7), the remaining period
of limitation for making of an order for imposition of penalty expires before the
end of a month, such remaining period shall be extended to the end of such month.
(9) An income-tax authority on making an order under sub-section (2) imposing
a penalty, unless he is himself an Assessing Officer, shall forthwith send a copy of
such order to the Assessing Officer.
Authority competent to make assessment of block period.
Plain-language summary — not the official text. Refer to the bare Act and confirm with a professional for your specific case.