Budget 2026–27: Misreporting Attracts Steep 200% Penalty On Tax Amount

Budget 2026–27 Overhauls Misreporting Penalties With Expanded Immunity And Simplified Process: The government has introduced sweeping changes to the misreporting penalty framework under Budget 2026–27, extending immunity provisions, lowering base tax on certain special incomes, and streamlining assessment procedures to encourage voluntary compliance.

Under the existing framework, tax discrepancies are categorised as either underreporting or misreporting. Underreporting, typically linked to errors or omissions, attracts a penalty of 50 per cent of the tax due. Misreporting, involving deliberate misrepresentation or incorrect disclosures, carries a much harsher penalty of 200 per cent of the tax amount.

Budget 2026–27 extends immunity from penalty

and prosecution to misreporting cases as well, subject to prescribed payment conditions. In standard misreporting cases, taxpayers must pay an additional 100 per cent of the tax amount, over and above base tax and interest, to qualify for immunity.

For cases involving unexplained cash credits, unexplained investments, or similar incomes, the settlement threshold has been set higher at 120 per cent of the tax amount. However, immunity will not be available where prosecution proceedings have already been initiated.

Simplified Process And Relief On Special Incomes

The Budget also rationalises the tax treatment of special incomes such as unexplained investments and cash credits. The base tax rate on such income has been reduced sharply from 60 per cent to 30 per cent. At the same time, the penalty structure for these cases has been aligned with the standard misreporting penalty of 200 per cent of the tax amount.