Finance Bill, 2025, limits tax scrutiny to undisclosed income in search cases

Tax authorities can now assess only income that was not reported earlier

The Finance Bill, 2025, has introduced a key amendment that confines `block' assessments in tax search and seizure cases only to undisclosed income.

`Block' assessments allow tax authorities to examine income over an extended period, focussing on concealed earnings that were not disclosed in  tax filings. But the fact that even income already reported in tax returns could be reassessed under the earlier system led to disputes over excessive scrutiny and multiple tax demands.

The new provision prevents reassessment of previously declared earnings, offering greater certainty to taxpayers and reducing the risk of extended tax disputes.

What changes?

Tax authorities can now assess only income that was not reported earlier and was detected during a search or seizure. Previously declared earnings cannot be reassessed. By narrowing the scope of reassessments, the amendment is expected to reduce the risk of arbitrary tax demands, lower tax disputes, and ease the burden on courts and appellate authorities.

Impact of the amendment

The amendment is aimed at lowering tax uncertainty and fostering a more predictable tax environment. It is expected to benefit businesses and individuals who have already disclosed their income accurately.

For tax authorities, the change ensures that resources are focussed on uncovering and taxing actual undisclosed income rather than re-examining declared earnings. Additionally, the amendment aligns with the government’s broader objective of  minimising litigation.

Experts believe the amendment will bring much-needed clarity and stability to tax search cases, promoting voluntary compliance. The move is also expected to improve the ease of doing business by addressing concerns related to prolonged tax scrutiny and retrospective tax claims.