In a significant move to ease tax compliance and reduce unnecessary security for taxpayers, the government has now amended the Finance Bill 2025. This has been done to redefine how income tax search cases are assessed.
The Income Tax Department has released a supplementary of frequently asked questions (FAQs) where it has replaced the term ‘total income’ with ‘total undisclosed income’ in Section 158BA. What does this change mean and how does it impact you? Let’s understand.
To put simply, this change ensures that tax searches focus only on income that has not been disclosed, rather than reassessing a taxpayer’s entire income. This amendment, a part of the Finance Bill 2025, is expected to bring much-needed relief to taxpayers. It would eliminate ambiguities and reinforce the government’s ‘trust first, scrutinise later’ approach.
Says CA Ashish Niraj, Partner, A S N & Company, Chartered Accountants, “By this amendment in the marginal heading and in sub-section (1) and sub-section (7) of section 158BA, the government has shown faith in Taxpayers. As total income has been replaced with ‘total undisclosed income’, the scope of this chapter does not apply to the already disclosed income part by the assessee in his block return, only that part of the income will be subjected to this chapter which is not disclosed by the taxpayer. In my view this is good from the point of view of the taxpayer.”
‘Total Income to Undisclosed Income’: What is this amendment?
By introducing these changes in Chapter XIV-B of the Income Tax Act, the tax department is looking to assess only undisclosed income which means placing more trust in taxpayers to report their regular earnings correctly.
“The concept of assessment of total income has been replaced with the assessment of undisclosed income. This reflects a paradigm shift where the main objective of a search or requisition is to identify income that has not been disclosed,” the ITD stated.
As per the FAQs:
Regular income will not be reassessed if it has already been disclosed in tax returns
Only undisclosed income found during a tax search will be put under scrutiny
Taxpayers need to declare their regular earnings accurately in the block return following a tax notice
What are the changes announced in Key Sections?
Section 158BA: In this section, the word ‘total income’ has been replaced with ‘total undisclosed income’ - a change that means tax searches hereon will only be concerned with earnings that were not previously declared.
Section 158BB: The amendment in this section provides a distinction between disclosed and undisclosed income. The FAQs have stated that only undisclosed earnings are taxed under the 60 per cent rate, while income which has been already reported in original returns will remain unaffected.
Section 158 BB (computation of undisclosed income): This section explains that the total undisclosed income of the taxpayer will include:
Undisclosed income that has been declared in the block return (Section 158BC)
Any additional undisclosed income found by the Assessing Officer during their tax search
What won’t be classified as undisclosed income? The income reported in regular tax returns (under section 139 or section 142(1)) and income properly recorded in books of account before the search.
What does this mean for taxpayers?
The use of ‘total income’ could have created confusion among taxpayers, leading to worries that even the legally declared income could be reassessed during the search. However, the amendment has eliminated such ambiguity
With an understandable distinction between disclosed and undisclosed income, taxpayers should know that only unreported earnings will be subject to a higher tax rate of 60 per cent
Moreover, the changes are in line with the government's push for a tax-friendly regime where taxpayers are trusted to report their income correctly and scrutiny is only limited to cases of tax evasion.
