Incorrect HRA claims? How Section 270AA helps

The Finance Act, 2026 amended Section 270AA of the Income-tax Act, 1961, altering the relief available to taxpayers regarding incorrect HRA claims and other exemptions or deductions. Prior to this amendment, relief under Section 270AA was only available to taxpayers if the Income-tax Department had not initiated penalty proceedings for under-reporting income. However, the amendment now allows taxpayers to seek immunity from penalty imposition before or after a penalty order is passed.

Under Section 270A, penalties can be up to 200% of the tax payable on under-reported income for certain misreporting instances, such as incorrect HRA claims. This stems from misrepresentation or suppression of facts, or claiming an exemption or deduction without the necessary eligible expenditure or investment. The penalty is imposed as a separate tax on the under-reported income, in addition to the assessed tax and interest, which remain payable independently.

To avail relief under Section 270AA, taxpayers must file a form 68 application to the Assessing Officer within one month of receiving an assessment order initiating penalty proceedings, or within one month of receiving a penalty order. This allows taxpayers to either seek immunity from penalty imposition or a waiver of an already imposed penalty. However, taxpayers must ensure they meet the eligibility criteria and fulfill the necessary conditions before applying for relief.