What changed
Recent amendments in India’s Finance Bill 2026 introduced changes to key sections of the Income-tax Act, 2025 related to block assessments (search and requisition cases) and third-party undisclosed income assessments:
- Section 296 (block assessment time-limit): Period extended from 12 to 18 months from end of the quarter in which search is initiated or requisition issued. Applies from April 1, 2026. (incometax.gov.in)
- In third-party cases where incriminating material relates only to the year immediately preceding the tax year when search is initiated / requisition made, block assessment limited to that single year. (incometax.gov.in)
- Section 332 (application for registration) amended: certain schedule references updated effective April 1, 2026. (incometax.gov.in)
Implications for taxpayers & tax practitioners
| Scenario | What this meant before | What this means now |
|---|---|---|
| Time-limit when search / requisition issued | Block assessments could span multiple years or tied to notice date – often ambiguous. | Now allowed up to 18 months from end of quarter in which action initiated — more predictable limited exposure. |
| Third-party undisclosed income | Could trigger assessments across several years based on material. | Now limited to single preceding year if incriminating material pertains only to that year. |
Strategy & compliance
- Assume any search/requisition issued on or after April 1, 2026 triggers new timelines.
- Review your internal risk if you’ve had searches and had third-party linkages: ensure your exposure beyond one year may not be triggered unless material exists for previous years.
- Keep clear documentation of when search or requisition was made, and prevent overlapping involvements unless material supports broader scope.
Example
Company A: Search initiated in May 2026. Incriminating material relates only to FY 2024-25 (year preceding FY 2025-26). Under prior law, assessments could go back further; now only FY 2024-25 is subject to block assessment in third-party assessment scenario.
Tips for practitioners
- Update engagement letters to reflect new limitation periods.
- Assist clients in preserving evidence of what income, records correspond to which years.
- When facing a notice of block assessment, scrutinize whether the authorities have correctly determined the reference period under new law.
Risks & questions remaining
- Claims may arise arguing material pertains to more years — need cost/benefit analysis.
- Transitional cases: what about searches issued before April 1, 2026 — old law applies. (incometax.gov.in)
Conclusion: The amendments bring clarity and more taxpayer-friendly limitation periods in block assessments and third-party cases. With careful planning and awareness, exposure to tax risk in these scenarios can be limited drastically.