Block Assessment After a Search: Undisclosed Income, 60% Tax and Time Limits (Income Tax Act 2025)

When the department searches a person under section 247 or requisitions books and assets under section 248, the Income Tax Act 2025 sends the case into a special track called block assessment (sections 292 to 301). The Assessing Officer assesses the total undisclosed income of a multi-year block period in one order, and that income is taxed at 60% under section 192, plus any surcharge. The order must be passed within 18 months from the end of the quarter in which the search was initiated (section 296(1), as substituted w.e.f. 1 April 2026).

This guide explains what the block period is, what counts as undisclosed income, how the return in Form ITR-BN works, when interest and penalty apply, and what happens to a person whose papers were found in someone else's search. It is general information based on the Act and the Income-tax Rules, 2026, not advice on a live case. For what happens on the day of the search itself, read our guide on search and seizure and your rights.

What is block assessment under the Income Tax Act 2025?

Block assessment is a special assessment procedure for search and requisition cases. Section 292(1) says that, irrespective of any other provision, once a search is initiated or a requisition is made, the Assessing Officer assesses or reassesses the total undisclosed income of the block period under this Part. The ordinary scrutiny route is displaced for that income.

The tax is charged on the aggregate undisclosed income of the block period as one lump, irrespective of the tax year or years to which it relates (section 292(7)). The rate is a flat 60% under section 192(1), and section 192(2) adds any surcharge levied by a Central Act.

What is the block period?

Section 301(a) defines the block period as the total of two parts:

1. the six tax years preceding the tax year in which the search was initiated or the requisition made; and
2. the period from 1 April of the tax year of the search up to the date the last of the authorisations was executed.

For a search, "last of the authorisations" is executed on the conclusion of the search as recorded in the last panchnama drawn for any person named in a warrant, whether or not anything was seized. For a requisition, it is the day the Authorised Officer actually receives the books, documents or assets (section 301(d)).

What counts as undisclosed income?

Section 301(e) casts the net wide. Undisclosed income includes any money, bullion, jewellery, virtual digital asset or other valuable article or thing, any expenditure, or any income based on an entry in the books or other documents or on a transaction, where that item represents wholly or partly income or property that has not been or would not have been disclosed for the purposes of the Act. It also includes any expense, exemption, deduction or allowance claimed under the Act which is found to be incorrect, in respect of the block period.

Under section 293(4), the Assessing Officer computes it from evidence found as a result of search, survey or requisition, and from any other material or information available to him or that comes to his notice during the proceedings.

What is left out of the block-period income?

Not every rupee of the block period is dragged into the 60% bucket. Section 293(2) excludes, among others:

• total income already determined or assessed before the date of the search for any tax year in the block period (the listed orders under sections 270, 271, 279 and 294(1)(c) of this Act and the corresponding assessments under the 1961 Act);
• total income declared in a return filed, or in response to a notice, before the search for any tax year in the block period;
• income the assessee computed from books and documents maintained in the normal course for (i) a tax year that had ended and whose return due date had not expired before the search, (ii) the period from 1 April of the search year to the day before the search, and (iii) the period from the search date to the date of the last authorisation, with the Assessing Officer free to recompute any part he considers undisclosed (section 293(3)).

Separately, section 292(6) says income of the search year that is not undisclosed income is assessed under the other provisions of the Act. Under section 293(5), income relating to an international transaction or specified domestic transaction (section 166) that falls in the stub period of the search year goes into the ordinary assessment, not the block assessment.

What happens to pending assessments?

Section 292(2)(a) abates assessment, reassessment or recomputation proceedings (other than under this Part) that were pending for any tax year in the block period on the date of search or requisition. Proceedings for a block-period year started by a notice issued after the search and before the block order abate on the date of that notice, except for the tax year in which the last authorisation was executed (section 292(2)(b)). If a transfer pricing reference is pending, it abates with them (section 292(3)).

If the block order is later annulled in appeal or other legal proceedings, the abated proceedings revive from the date the Principal Commissioner or Commissioner receives the annulment order, and that revival ceases if the annulment is set aside (section 292(5)).

How does the return of undisclosed income work?

Section 294(1)(a) requires the Assessing Officer to issue a notice asking the person to file a return of undisclosed income for the block period within a period stated in the notice, not exceeding 60 days. Before issuing it, he needs the prior approval of the Additional Commissioner, Additional Director, Joint Commissioner or Joint Director (section 294(3)).

Key rules for that return:

• It is filed in Form ITR-BN (rule 180(1)). A company files electronically under digital signature. Anyone else files electronically under digital signature or by transmitting data under an electronic verification code (rule 180(2)).
• It is treated as a return under section 263, and a notice under section 270(8) follows. A return filed after the period in the notice is not treated as a section 263 return (section 294(1)(a)(i), (ii)).
• No notice under section 280 is needed, and no revised return is allowed (section 294(1)(a)(iii), (iv)).
• The period can be extended by 30 days only if the immediately preceding tax year's return due date had not expired before the search, the assessee was liable to audit under section 63 for it, the accounts were not yet audited when the notice was issued, and the assessee asks in writing for time to get them audited (section 294(1)(a)(v)).
• Where tax credits other than self-assessment tax for the block period are claimed, they are subject to the Assessing Officer's verification and satisfaction (rule 180(4)).

Who passes the order, and by when?

The order must be passed by an Assessing Officer not below the rank of Deputy Commissioner, Assistant Commissioner, Deputy Director or Assistant Director, with the previous approval of an Additional Commissioner, Additional Director, Joint Commissioner or Joint Director (section 299). The Assessing Officer determines the total undisclosed income under section 293 and passes the order determining the tax payable, and section 275 does not apply to it (section 294(1)(c)). Seized and requisitioned assets are then dealt with under section 250 (section 294(1)(d)).

Situation	Time limit	Section
Searched or requisitioned person	18 months from the end of the quarter in which the search was initiated or requisition made	296(1)
Transfer pricing reference made during the block assessment	Extended by 12 months	296(2)
Time before seized material reaches the Assessing Officer	Excluded, up to 180 days from the search or requisition	296(3)
"Other person" (see below)	12 months from the end of the quarter in which the section 294 notice was issued to them	296(5)
Other person, with a transfer pricing reference	Extended by 12 months	296(6)
Remaining time less than 60 days after exclusions	Extended to 60 days, then to the end of that month	296(8), (9)

Section 296(7) also excludes periods such as a court stay, an information request to a foreign authority (up to one year), a direction to get accounts audited, a valuation reference, an impermissible-avoidance-arrangement reference and a pending Board for Advance Rulings application. Check the full list in the section before computing a deadline. Before 1 April 2026 the limit ran 12 months from the end of the quarter in which the last authorisation was executed, a basis the Finance Act 2026 replaced (footnote 63 to section 296).

How is block assessment different from a normal assessment?

Point	Block assessment (Part B)	Normal route
Income assessed	Only undisclosed income of the block period (s 292(1))	Total income of the tax year
Period	Six tax years plus the stub period, in one order (s 301(a))	One tax year at a time
Rate	60% plus surcharge (s 192)	As per the other charging provisions
Return	ITR-BN on notice; no revised return (s 294(1)(a), rule 180)	Return under section 263 and its revision rules
Interest and penalty	Own regime in s 298; ss 423-425 and 439 barred (s 297)	Ordinary interest and penalty provisions
Search-year income that is not undisclosed	Assessed separately under the other provisions (s 292(6))	Not applicable

Is interest or penalty payable?

Section 297 bars interest under sections 423, 424 and 425 and penalty under section 439 on undisclosed income assessed for the block period. Section 298 has its own regime instead.

• Interest for not filing: if the return is not furnished within the notice period, or not at all, simple interest at 1.5% of the tax on undisclosed income determined under section 294(1)(c) applies for every month or part of a month, from the day after the notice period ends until the assessment is completed (section 298(1)).
• Penalty: the Assessing Officer or the Commissioner (Appeals) may direct a penalty equal to 50% of the tax leviable on the undisclosed income determined (section 298(2)). A hearing is mandatory, and where the penalty exceeds Rs 2,00,000 an Assistant or Deputy Commissioner or Director needs prior approval of the Additional or Joint Commissioner or Director (section 298(5)(a), (b)).

Penalty shield. No penalty order can be made for the block period under section 298 or section 444(1), 450, 451 or 453 if the person (a) filed the return under section 294(1)(a), (b) paid the tax on it, or, where seized assets are money, offered the seized money for adjustment, (c) furnished evidence of payment with the return, and (d) did not appeal against the assessment of the income shown in the return (section 298(3)). If the Assessing Officer determines more than the return showed, penalty can still be imposed on the excess portion only (section 298(4)).

What if my papers were found in someone else's search?

Section 295 covers the "other person". If the Assessing Officer is satisfied that undisclosed income belongs to, pertains to or relates to someone other than the person searched, the seized money, bullion, jewellery, virtual digital assets, valuables, books and documents, or other information, go to the Assessing Officer who has jurisdiction over that other person. He then proceeds under section 294 against them.

The block period for the other person is normally the same as for the searched person. Where several searched persons are linked, it is the one whose block period ends later (section 295(2)(a), (b)). Two rules inserted from 1 April 2026 narrow it: if the undisclosed income relates only to the year immediately before the search year and the stub period up to the last authorisation, the block period is just those two stretches; if it relates to only a single tax year out of the five years before that immediately preceding year, the block period is that single year (section 295(2)(c), (d)). For abatement of the other person's pending cases, the trigger date is the day the material reached their Assessing Officer (section 295(3)).

What happens to brought-forward losses?

Losses brought forward from tax years before the first year of the block period, and unabsorbed depreciation under section 33(11), cannot be set off against undisclosed income in the block assessment (section 293(8)). They are not lost: they can be carried forward to the tax year after the block period ends, for the remaining period, under the normal rules (section 293(9)). For a firm, undisclosed income is computed before deducting salary, interest, commission, bonus or remuneration to a non-working partner (section 293(6)(a)).

Worked example 1: tax and penalty position

Assumptions: tax year 2026-27, search on 10 August 2026, surcharge ignored. Ravi runs a trading business. The Assessing Officer's findings are: cash of Rs 40,00,000 not recorded in his books, sales entries in a diary of Rs 25,00,000 never booked, and a deduction of Rs 5,00,000 claimed in an earlier year that is found incorrect.

Step	Working	Rs
1. Unrecorded cash	As found	40,00,000
2. Unbooked sales in diary	As found	25,00,000
3. Incorrect deduction	As found	5,00,000
4. Total undisclosed income	40,00,000 + 25,00,000 + 5,00,000	70,00,000
5. Tax at 60% (s 192)	70,00,000 x 60%	42,00,000

Case A. Ravi files ITR-BN declaring Rs 50,00,000, pays Rs 30,00,000 (50,00,000 x 60%), attaches proof and does not appeal. The Assessing Officer determines Rs 70,00,000. The excess is 70,00,000 minus 50,00,000 = Rs 20,00,000. Tax on the excess is 20,00,000 x 60% = Rs 12,00,000, so any section 298(2) penalty is capped at 50% of that, which is Rs 6,00,000. No penalty can be levied on the declared Rs 50,00,000 (section 298(3), (4)).

Case B. Ravi declares nothing. A penalty of up to 50% of the full tax is possible: 42,00,000 x 50% = Rs 21,00,000, with interest under section 298(1) on top (see example 2).

Worked example 2: interest for not filing the return

Assumptions: Meena is searched, receives a section 294 notice giving 60 days, and does not file. The assessment is completed eight months, counting part of a month as a month, after the notice period ended. The tax determined under section 294(1)(c) is Rs 42,00,000.

1. Monthly interest = 42,00,000 x 1.5% = Rs 63,000.
2. Months counted = 8.
3. Interest = 63,000 x 8 = Rs 5,04,000.

Worked example 3: time limit

Assumptions: search initiated 10 August 2026, last panchnama on 14 August 2026, no exclusions apply, no transfer pricing reference. The quarter containing 10 August 2026 is July to September 2026, which ends on 30 September 2026. Adding 18 months gives 31 March 2028 as the last date for the block assessment order under section 296(1). If the seized material reaches the Assessing Officer 60 days after the search, those 60 days are excluded under section 296(3), pushing the deadline out by that much, subject to the month-end rounding in section 296(4). If a notice is issued on 20 November 2026 giving the full 60 days, the return is due by 19 January 2027.

Real-life example 1: the diary that belonged to someone else

Kiran, a jeweller, is not searched. During a search at a wholesaler's premises, a ledger is seized with entries that the Assessing Officer is satisfied relate to Kiran's unrecorded sales. The ledger goes to Kiran's Assessing Officer under section 295(1), who issues Kiran a section 294 notice. Kiran's block period is generally the same as the wholesaler's (section 295(2)), and the order must come within 12 months from the end of the quarter in which Kiran's notice was issued (section 296(5)).

Real-life example 2: the pending scrutiny that disappears

Before the search, Meena's return for tax year 2023-24 was under scrutiny. That year falls in the block period, so the scrutiny abates on the search date (section 292(2)(a)). Her 2023-24 undisclosed income is now picked up in the block order, while the income she had already declared in her filed return is excluded from the undisclosed total by section 293(2)(b).

Real-life example 3: the loss that waits

Ravi carries forward a business loss from a tax year before the first year of his block period. It cannot reduce the Rs 70,00,000 of undisclosed income in the block assessment (section 293(8)). It stays available to be set off in the tax year after the block period ends, subject to the normal rules (section 293(9)).

Common mistakes

• Treating ITR-BN like an ordinary return. It cannot be revised, and a late one is not a valid section 263 return.
• Filing without paying. The penalty shield needs the return, payment (or an offer to adjust seized money), proof of payment and no appeal on the declared income.
• Assuming the old 12-month clock still applies. Section 296(1) now runs 18 months from the end of the quarter in which the search was initiated.
• Ignoring the stub period. The block period includes 1 April of the search year up to the last authorisation, not just the six earlier years.
• Forgetting third parties. A person never searched can receive a section 294 notice through section 295.
• Missing the extra approvals. The notice needs prior approval (s 294(3)) and the order needs previous approval (s 299(2)). Both are worth checking in the file.

Quick reference

Item	Rule	Where
Block period	Six tax years before the search year, plus 1 April of search year to last authorisation	s 301(a)
Tax rate	60% plus surcharge, if any	s 192
Return form	ITR-BN	Rule 180
Return period	As in notice, up to 60 days; 30 more days for audit cases	s 294(1)(a)
Interest for not filing	1.5% per month or part of a month on the tax	s 298(1)
Penalty	Up to 50% of tax on undisclosed income	s 298(2)
Order deadline	18 months from end of the quarter of search	s 296(1)
Brought-forward losses	No set-off in block assessment	s 293(8)

How a CA firm can keep track

A block assessment runs on notice dates, return dates, approval checks and limitation calculations, each tied to an event that is easy to misplace in a client file. Finexo's practice management software lets a CA firm log each notice and deadline against the client and get reminders before they pass. It does not compute undisclosed income or file ITR-BN for you.

Where this is in the Act

• Section 192: 60% tax on block-period undisclosed income
• Section 292: assessment, abatement, revival and separate assessment of the search-year income
• Section 293: computation, exclusions, losses
• Section 294: notice, return, order, assets
• Section 295: undisclosed income of any other person
• Section 296: time limit
• Section 297: interest and penalty not levied
• Section 298: interest for non-filing and penalty
• Section 299: competent authority and approval
• Section 300: other provisions apply
• Section 301: block period, search, requisition, undisclosed income
• Rule 180 (Income-tax Rules, 2026): Form ITR-BN

Section 300 adds that, save as otherwise provided in this Part, all other provisions of the Act apply to assessments under this Part. This article is general information, not tax or legal advice. Law as amended by the Finance Act 2026, effective 1 April 2026.