Good news: If penalty is imposed for misreporting of income or other cases you can apply for waiver of penalty using revised Form 161; Check the details

The Central Board of Direct Taxes (CBDT) on October 8, 2026, has introduced a revised Form 161, using which eligible taxpayers, including individuals, can apply for waiver of penalty imposed on them due to misreporting of income or other cases. This is good news since now due to the revised Form 161, taxpayers can resolve tax disputes at an earlier stage, reduce litigation and avoid potentially higher tax penalty liabilities. Also, earlier the Form 161 did not permit taxpayers to apply for waiver of penalty in cases which involving misreporting of income since it was previously excluded from the scope of immunity.

This notification was published in the e-gazette of India (G.S.R. 871(E) and says that the new Form 161 is set to become applicable from October 8, 2026 onwards.

What does this revised Form 161 mean for taxpayers?

Chartered Accountant Suresh Surana said to ET Wealth Online that this amendment in the rules and Form 161 is a welcome development for taxpayers, as it provides a clearer procedure for seeking waiver of penalty and immunity from prosecution under the Income-tax Act, 2025.


Surana says: “The revised Form No. 161 enables eligible taxpayers to apply for such relief, including in specified cases involving misreporting of income, which were previously excluded from the scope of immunity.”

According to Surana this new amendment in Form 161 and the consequential Income Tax rules may help taxpayers resolve tax disputes at an earlier stage, reduce litigation and avoid potentially higher penalty liabilities. However, the relief is subject to certain prescribed conditions which are discussed in the later part of the article.

Accordingly, the revised procedure offers eligible taxpayers an opportunity to resolve penalty-related matters without prolonged litigation, provided they fulfil the statutory conditions. However, taxpayers should carefully evaluate the financial implications and the consequences of foregoing their right to appeal before opting for the relief.

Surana says: “The amendment does not provide automatic waiver of penalty or immunity from prosecution.”

What are the statutory conditions for waiver of penalty if someone needs to apply in Form 161?

Surana says that as per Section 440 of the Income-tax Act, 2025, taxpayers seeking waiver of penalty under Section 439 and immunity from initiation of prosecution proceedings under Sections 478 or 479 must fulfil certain statutory conditions:

Firstly, the taxpayer must pay the tax and interest payable as per the assessment or reassessment order within the period specified in the notice of demand.

Further, where the penalty relates to misreporting of income covered under Section 439(11)(a) to (f), the taxpayer must pay additional income-tax equivalent to 100% of the tax payable on the under-reported income.

In cases covered under Section 439(11)(g), the additional income-tax payable is 120% of the tax on the under-reported income. Such additional income-tax must also be paid within the period specified in the notice of demand, in lieu of the applicable penalty.

Additionally, the taxpayer must not have filed an appeal against the relevant assessment or reassessment order and penalty order.

The application must be submitted to the Assessing Officer (AO) in the prescribed Form No. 161 within one month from the end of the month in which the relevant order is received.

The revised form also requires taxpayers to furnish the necessary particulars of the assessment, under-reported income, tax liability and payments made, along with a declaration confirming that no appeal has been filed and an undertaking not to file an appeal during the prescribed period.

Surana says that waiver of penalty and immunity from prosecution cannot be granted where proceedings under Chapter XXII of the Income-tax Act, 2025 have already been initiated.

What happens after you submit Form 161?

Upon receiving the application, the AO must examine whether the prescribed conditions have been fulfilled and pass an order accepting or rejecting the application within three months from the end of the month in which it is received.

The AO must provide the taxpayer an opportunity of being heard before rejecting the application. Where the application is accepted, the taxpayer cannot subsequently challenge the relevant assessment or reassessment order through an appeal or revision.

Accordingly, taxpayers must carefully assess their eligibility, ensure timely payment of the applicable tax, interest and additional income-tax, wherever required, and consider the implications of foregoing their right to appeal before applying for waiver of penalty through Form No. 161.

What was the earlier process which is now amended?

The CBDT, vide Notification No. 134/2026 dated October 8, 2026, has amended Rule 231 of the Income-tax Rules, 2026, to incorporate provisions relating to the waiver of penalty under Section 440 of the Income-tax Act, 2025.

Earlier, the said Rule provided for filing an application seeking immunity from the imposition of penalty under Section 439 and initiation of prosecution proceedings under Sections 478 or 479. The amendment now expressly includes the waiver of penalty within the scope of the application procedure.

The amendment is consequential to the changes introduced by the Finance Act, 2026, which expanded the scope of relief available to eligible taxpayers, including certain cases involving misreporting of income.

CBDT has substituted the existing Form No. 161 with a revised form to facilitate applications for such relief. The revised form seeks relevant details relating to the assessment, nature of under-reporting or misreporting, applicable tax liability and payments made by the taxpayer.

Accordingly, the notification primarily gives procedural effect to the amended statutory provisions by updating Rule 231 and Form No. 161. It does not provide automatic immunity or waiver of penalty, and taxpayers must satisfy the prescribed conditions to avail themselves of the relief.