Finance Bill: Tax Officers To Only Assess Undisclosed Income In Block Assessments During Search Cases

The government has introduced amendments to the Finance Bill, 2025, which state that tax officers will focus solely on assessing undisclosed income in block assessments during search cases, instead of evaluating the total income of the taxpayer.

Approved by the Lok Sabha on Tuesday, these changes will be implemented retrospectively from Sept. 1, 2024. The amendments to Chapter XIV-B of the Income Tax Act replace the concept of assessing 'total income' with 'undisclosed income'.

Part of the 35 amendments cleared by the Lok Sabha to the Finance Bill, 2025, this marks a significant shift in approach. According to an FAQ issued by the income tax department, the changes aim to identify undisclosed income during searches or requisitions, while trusting taxpayers to report their regular income in block income tax returns.

The FAQ further stated that regular income for taxpayers under scrutiny after a search operation will be taxed separately at the applicable rate.

Regular income will continue to be determined based on entries or transactions recorded in the books of account or documents maintained in the normal course before the initiation of the search or requisition, the FAQ said.

EY, in its analysis of Finance Bill, 2025, amendments said that last year, the government introduced a significant shift in search assessments from assessment of each individual year separately to a single consolidated assessment for a block period comprising specified years.

In this regard, the New Block Assessment Regime provided for assessment of undisclosed income, as well as regular income.

According to EY, the amended Finance Bill, 2025, in a way, now reinstates the pre-2003 block assessment regime to restrict the scope of assessment under the New Block Assessment Regime to only undisclosed income.

(With PTI inputs)