A penalty order has always left a client with two options: pay it, or fight it. The Income-tax Act, 2025 carries a third, and on 8 October the form for it was rewritten.
What was notified
Notification No. 134/2026 of 8 October 2026 — the Income-tax (Sixth Amendment) Rules, 2026 — makes two changes:
- Rule 231 gains the words "or waiver" after "imposition", so a rule that governed how a penalty is imposed now governs how one is waived.
- Form No. 161 is substituted outright. The new version is an application for waiver of penalty under section 440(2), and it asks for the assessment or reassessment particulars, the under-reported income, the additional income-tax payable and the proof that it has been paid.
The trade the form asks you to make
Read the fields in order and the mechanism is plain. You are not arguing that the penalty is wrong. You are offering to pay additional income-tax instead of it, and asking for the penalty to go.
The form sets the price itself, and it is more precise than the two figures in circulation suggest. Under-reported income is split at item 12 into amounts that arise in consequence of misreporting and amounts that do not. The additional income-tax is then charged only on the misreporting side, at two different rates:
- 100% of the tax on under-reported income under section 439(11)(a) to (f)
- 120% of the tax on under-reported income under section 439(11)(g)
Under-reported income that is not a consequence of misreporting has no additional income-tax line against it at all.
And the total is not only that amount. Item 16 adds it to the tax and interest already payable on the assessed income, so the cheque is the assessment plus the additional tax, not the additional tax alone.
In exchange the form requires two things that matter more than the arithmetic:
- a declaration that no appeal has been filed against the order, and
- an undertaking not to appeal before the period in section 440(5) has run out.
So this is a settlement, and the price is the right to contest. A client who signs it has chosen certainty over the chance of winning.
When that is the right trade, and when it is not
It is worth considering where the addition itself is not seriously disputable — a genuine omission, a timing difference the client cannot document, a figure that will not survive a second look. There, the penalty is the main remaining exposure and buying it out has a value you can compute.
It is the wrong trade where the addition rests on a view of law rather than a defect in the books. Giving up the appeal does not only lose this year's argument; it concedes the characterisation that produced it, and the same issue usually comes back in the next assessment.
The decision is not "is the penalty affordable". It is "would we have won, and what is the same question worth in the years after this one".
What the notification does not say
Two things a practitioner will ask immediately, and the notification answers neither:
- where the application is filed, and
- whether any fee attaches to it.
Both will come from the portal or from a later clarification. Until then, treat a deadline you have inferred as an inference.
What the notification is silent about is the time limit. There is no "one month", no "time limit" and no "shall be made" anywhere in its text. A deadline quoted elsewhere comes from section 440 of the Act rather than from this notification, so read it there and not here.
Why it matters beyond the one client in front of you
A waiver route with a fixed price changes the shape of a penalty conversation. Until now the answer to "what happens if we lose" was a range. With a published figure attached to giving up the appeal, the range becomes a comparison — and a comparison is something a client can actually decide on.
That is useful. It also means the file needs to be better than it was: the decision to pay rather than appeal is one a client may revisit years later, and the note explaining why has to exist at the time it was taken.
Questions this answers
What did Notification 134/2026 change?
Issued on 8 October 2026 as the Income-tax (Sixth Amendment) Rules, 2026, it substitutes Form No. 161 with an application for waiver of penalty under section 440(2), and inserts the words 'or waiver' after 'imposition' in rule 231 so that the rule covers both.
What does the revised Form 161 ask for?
Personal particulars, the assessment or reassessment details, the under-reported income, the additional income-tax payable and the particulars of its payment, together with a declaration about appeals.
What does an applicant give up?
The right to contest. The form requires a declaration that no appeal has been filed against the order and an undertaking not to appeal before the period in section 440(5) expires, so the waiver is a settlement rather than a concession.
How much additional income-tax is payable?
The form charges it only on under-reported income that arises from misreporting: 100% of the tax on amounts under section 439(11)(a) to (f) and 120% on amounts under section 439(11)(g). Under-reported income that is not a consequence of misreporting carries no additional income-tax. Item 16 then adds that to the tax and interest already payable on the assessed income.
Where is the application filed?
The notification does not say, and nor does it state whether any fee attaches. Both will come from the portal or a later clarification, so any filing deadline inferred from the rule should be treated as an inference.
When is applying the right choice?
Where the addition itself is not seriously disputable and the penalty is the main remaining exposure. Where the addition turns on a view of law rather than a defect in the books, giving up the appeal concedes the characterisation too, and the same issue usually returns in the next assessment.
Look up any section
The Income-tax Act 2025 section finder lists every 1961 TDS and TCS section with its 2025 section and Table serial, the rate and threshold as enacted, and the page of the Act, with a TDS rate chart and a TCS rate chart.