CBDT amends Income Tax Form 161 on 8 October: What changes for taxpayers seeking penalty waiver? Expert explains

The Central Board of Direct Taxes (CBDT) has amended Income-tax Form 161 through the Income-tax (Sixth Amendment) Rules, 2026, notified on 8 October 2026.

The notification, issued under Section 533 read with Section 440 of the Income-tax Act, 2025, states that Rule 231 has been amended by inserting the words “or waiver” after “imposition”.

It also states that “for FORM NO. 161, the following Form shall be substituted”, replacing the existing Form 161 with a revised version. The amendment updates the rule and form to add the waiver provisions. Here’s what taxpayers need to know.

What has changed in Income Tax Form 161?

According to the IT Act 2025, “Form 161 is an application prescribed under section 440(2) for seeking immunity from imposition of penalty under section 439 and initiation of prosecution under sections 478 or 479, in cases of under-reporting or misreporting of income, after receipt of an assessment or reassessment order.”

Isha Sekhri, Founder, Isha Sekhri & Associates LLP, said the notification now amends Rule 231 of the Income-tax Rules, 2026 by inserting “or waiver” after “imposition”. It also substitutes Form No. 161 with a fully revised application for seeking a waiver of penalty.

Earlier, Rule 231 referred only to the “imposition” of a penalty. Now, with the addition of “or waiver”, taxpayers have an updated provision to seek a waiver of penalty.

She explained that this change reflects a fundamental shift in the taxpayer‘s right to seek relief. The revised wording in Rule 231 now explicitly includes “waiver,” which allows a taxpayer to seek relief even in cases where a penalty has already been imposed.

The substituted Form 161 is more comprehensive, requiring details of the penalty orders already passed and evidence of the payment of “additional income-tax,” which is a prerequisite for the waiver, Sekhri mentioned.

What do Sections 533, 440 and Rule 231 mean for taxpayers?

Sekhri explains that these provisions serve different purposes:

• Section 533 of the Income-tax Act, 2025 grants the CBDT the general power to make rules for carrying out the purposes of the Act, including prescribing forms and procedures.
• Section 440 is the substantive provision titled “Waiver of penalty and immunity from prosecution”. It empowers the AO to grant a waiver of penalty levied for under-reporting and misreporting of income by a taxpayer, immunity from prosecution on wilful attempt to evade tax, and failure to furnish returns.
• Rule 231 prescribes the procedure and form for this application. Form 161 is the prescribed application form for taxpayers. The revised form now has a prescribed calculation of the additional income-tax payable in lieu of penalty.

Who can apply for a waiver of penalty using Form 161?

According to Sekhri, taxpayers who have received an assessment or reassessment order and face a penalty under Section 439 can apply, provided they meet the prescribed conditions:

• Pay the tax and interest demand: The taxpayer must pay the entire tax and interest demanded within the time specified in the demand notice.
• Pay additional income tax: The taxpayer must pay the prescribed additional income tax in lieu of the penalty. This is reported to be 100% or 120% of the tax on the relevant income in certain cases.
• Do not file an appeal: The taxpayer must not have filed an appeal against the assessment or reassessment order and must undertake not to file one.
• Meet the prosecution-related condition: The waiver is not available if proceedings under Chapter XXII have already been initiated.

What is the deadline to file Form 161?

Sekhri said taxpayers must file Form 161 within one month from the end of the month in which they receive the assessment or reassessment order.

The AO must decide within three months from the end of the month of receipt and cannot reject the application without a hearing. The waiver is granted only after the appeal period expires.

However, she cautions that once the waiver is accepted, the assessment order becomes final, with no appeal or revision allowed against it. Taxpayers with a strong case for appeal should carefully consider this trade-off. The relief does not cover the penalty under Section 444 for false entries.

When do the amended rules come into effect?

The notification states the rules will come into force on the date of their publication in the Official Gazette.

According to Sekhri, this means the rules take effect from the date of publication, rather than retrospectively or from a later, fixed date. As the notification is dated 8 October 2026, they apply from that date.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified expert for the latest laws and regulations.