Under-reporting versus misreporting
Under-reporting of income broadly refers to cases where the income assessed by the tax authorities is higher than the amount the taxpayer reported in their return. Such gaps may arise due to errors, omissions, or interpretational differences. They do not necessarily imply deliberate wrongdoing.
Misreporting is a more serious offence. “It is treated as an aggravated form of under-reporting. It typically involves deliberate or wilful conduct, such as suppression of receipts, false entries in books, claiming bogus expenditure or deductions, or misrepresentation of facts. The key difference is intent. Misreporting implies a conscious attempt to mislead the tax authorities,” says Vishwas Panjiar, founder, SVAS Business Advisors.
Penalties and prosecution for misreporting
Currently, the law provides for a penalty of 200 per cent of the tax payable on the misreported income. “Depending on the nature of the case, misreporting can also lead to prosecution proceedings, including imprisonment (generally ranging from six months to seven years) where the authorities can establish a wilful attempt to evade tax or furnishing of false particulars,” says Panjiar.
Immunity framework for under-reporting
At present, a taxpayer can seek immunity from penalty and prosecution by paying the tax and interest as per the assessment order, not filing an appeal against the assessment order, and filing an application for immunity within the prescribed time. Until now, the law did not offer such immunity in cases categorised as misreporting.
Extension of immunity framework to misreporting
To reduce litigation and simplify compliance, Budget 2026 has extended the immunity framework to cases of misreporting as well. “In such cases, however, immunity will be granted only if the taxpayer pays the tax and interest due, along with an additional amount equal to 100 per cent of the tax on the misreported income,” says Rupali Singhania, founder, Areete Consultants.
“The move creates a settlement mechanism that allows taxpayers to resolve disputes upfront. It will discourage misreporting, reduce prolonged litigation, and enable faster closure,” says Panjiar.
The extended immunity framework allows taxpayers to regularise misreported income by offering relief from penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act). The proposal also seeks to waive prosecution for foreign assets valued up to Rs 20 lakh, which may ease compliance in cases of minor or inadvertent non-disclosure and reduce litigation.
One point needs to be kept in mind. “Payments made under the fast-track dispute settlement (FAST-DS) mechanism are non-refundable, even if the income or asset is later found to be non-taxable or wrongly classified as misreporting. Taxpayers must, therefore, carefully assess their overseas disclosures before opting in, as an incorrect decision could result in irreversible financial outgo,” says Deepashree Shetty, partner, global mobility services, tax and regulatory advisory, BDO India.
When to opt for immunity, when to avoid
Shetty suggests that taxpayers could avail of the immunity framework, especially in cases of past misreporting or where they may have received a foreign asset ‘NUDGE’ alert from the Central Board of Direct Taxes (CBDT) recently.
If a taxpayer accepts the assessment order, they can claim immunity after paying the tax and interest, thereby avoiding prolonged litigation. “However, if the taxpayer chooses to contest the order further, they should not opt for immunity, as it is granted only on the condition that no further appeal is filed,” says Singhania.
Taxpayers should assess the materiality of the additions and the strength of their legal position. They must evaluate the decision carefully, as opting for immunity forecloses the right to contest the demand through appeals.
The writer is a Delhi-based independent journalist.
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