Assessments and Time Limits under Income Tax Act [New v/s Old Tax Act Series]

The Income Tax Act of 2025 marks a legislative milestone of India's direct tax framework, replacing a six decade old income tax act of 1961. While the new statutes retains core architecture of income classification and return filing, it introduces significant reforms in various other aspects.

Understanding Assessment under the Income Tax Act

Assessment is the process by which the income tax department examines a taxpayer’s return to determine his/her tax liability. It includes summary processing, detailed scrutiny, best judgment assessment, and reassessment to determine escaped income. Under both the acts, these four categories of assessment form the basis of assessment proceedings

1. Summary Assessment (S 143(1) of old Income Tax Act)
2. Scrutiny Assessment (s 143 (3) of old Income Tax Act)
3. Best Judgment Assessment (S 144 of old Income Tax Act)
4. Reassessment for Escaped Income (Section 147 old Income Tax Act)

The 2025 act retains these categories but has reassigned the section numbers and has introduced some shifts in the timelines.

Summary Assessment

This is a preliminary assessment and is referred to as a summary assessment without calling the assessee (i.e., taxpayer).

Under the 1961 act, summary assessment under section 143(1) involved preliminary checks for arithmetical errors, incorrect claims, and inconsistencies. There is no requirement of notice unless adjustments were proposed, and the time limit for the completion of this assessment is 9 months from the end of the financial year in which the return was filed.

Procedure of assessment under section 143(1)

• After correcting arithmetical error or incorrect claim (if any) as discussed above, the tax, interest and fee*, if any, shall be computed based on the adjusted income.
• Any sum payable by or refund due to the taxpayer shall be intimated to him.
• An intimation shall be prepared or generated and sent to the taxpayer specifying the sum determined to be payable by, or the amount of refund due to the taxpayer.
• An intimation shall also be sent to the taxpayer in a case where the loss declared in the return of income by the taxpayer is adjusted but no tax or interest is payable by or no refund is due to him.
• The acknowledgement of the return of income shall be deemed to be the intimation in a case where no sum is payable by or refundable to the assessee or where no adjustment is made to the returned income.

The 2025 act has retained this structure under section 271 with the same 9-month window. However, it codifies the adjustment process more clearly, including mandatory intimation and a 30-day response period before any modification is made.

Scrutiny Assessment

This is a detailed assessment, referred to as a scrutiny assessment. At this stage, a detailed scrutiny of the return of income will be conducted to verify the accuracy and authenticity of various claims, deductions, and other entries made by the taxpayer in the return of income.

Scrutiny assessment under section 143(3) of the 1961 Act involves a detailed examination of claims, deductions and income disclosures. The AO could issue a notice under section 143(2) within 3 months from the end of the financial year in which the return was filed. Completion time varies over the years, and it can range from 21 months to 9 months depending on the assessment year.

Procedure of assessment under section 143(3):

• If the AO considers it necessary or expedient to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, then he will serve on the taxpayer a notice requiring him to attend his office or to produce or cause to be produced any evidence on which the taxpayer may rely, in support of the return.
• To assess section 143(3), the AO shall serve such notice in accordance with the provisions of section 143(2).
• Notice under section 143(2) should be served within a period of three months from the end of the financial year in which the return is filed. The taxpayer or his representative (as the case may be) will appear before the AO and will place his arguments, supporting evidence, etc., on various matters/issues as required by the AO.
• After hearing/verifying such evidence and taking into account such particulars as the taxpayer may produce and such other evidence as the AO may require on specified points and after taking into account all relevant materials which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the taxpayer and determine the sum payable by him or refund of any amount due to him based on such as

Under the new act, scrutiny assessment is governed by section 271, with the notice window reduced to 3 months from the end of the financial year. Completion must occur within 12 months from the end of the assessment year in which the income was first assessed.

Best Judgment Assessment

This is an assessment carried out as per the best judgment of the AO based on all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144. No specific notice is required if prior notices under section 142(1) are issued. Completion timelines are similar to those of scrutiny assessments.

According to Section 144, the AO is under an obligation to assess the best of his judgment in the following cases:-

• If the taxpayer does not file the return required within the due date, as under section 139(1) or a belated return under section 139(4) or a revised return under section 139(5), or an updated return under section 139(8A).
• If the taxpayer doesn’t comply with all the terms of a notice issued under section 142(1). Note: The AO can issue notice under section 142(1) asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the taxpayer, whether included in the accounts or not) as he may require.
• If the taxpayer fails to comply with the directions issued under section 142(2A).

Note: Section 142(2A) deals with special audit.

• If the AO is not satisfied with the correctness or the completeness of the accounts of the taxpayer, or if no method of accounting has been regularly employed by the taxpayer.

Procedure of assessment under section 144:

• If the conditions given above calling for best judgment are satisfied, then the AO will serve a notice on the taxpayer to show cause why the assessment should not be completed to the best of his judgment.
• No notice as given above is required in a case where a notice under section 142(1) has been issued before the making of an assessment under section 144.
• If the AO is not satisfied by the arguments of the taxpayer and he has reason to believe that the case demands a best judgment, then he will proceed to assess the best of his knowledge.
• If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant materials which the AO has gathered, and after giving the taxpayer an opportunity of being heard, the AO shall assess the total income or loss to the best of his knowledge/judgment and determine the sum payable by the taxpayer based on such assessment

Reassessment

The Finance Act, 2021, has substituted the existing sections 147, 148, 149 and 151 and also inserted a new section 148, making a complete change in the assessment proceedings related to Income escaping assessment and search-related cases.

The new provisions related [As amended by Finance Act, 2025] to re-assessment are as follows:

If any income of an assessee has escaped assessment for any assessment year, the AO may, subject to the new provisions of sections 148 to 153, assess or reassess such income and also any other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for such assessment year.

It is imperative to note that once assessment, reassessment or re-computation has started, the AO is empowered to assess or reassess the income which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under this procedure, notwithstanding that the procedure prescribed in new section 148A was not followed before issuing such notice for such income.

The AO shall serve on the assessee a notice under Section 148 along with a copy of the order passed under clause (d) of Section 148A, requiring him to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year.

The return shall be furnished within the period specified in the notice (not exceeding 3 months) from the end of the month in which such notice is issued.

Circumstances in which notice can be issued:

Notice is required to be issued only when information with the AO suggests that the income chargeable to tax has escaped assessment. Prior approval of the specified authority is also required to be obtained before issuing such notice by the AO.

Instances of Escaped Income for Assessment

In cases other than Search, Survey or Requisition

(a) The information suggesting that the income chargeable to tax has escaped assessment means any information flagged in the case of the assessee for the relevant assessment year as per the ‘Risk Management Strategy’ formulated by the CBDT from time to time;

(b) Any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of the Income-tax Act;

(c) Any information received under an agreement referred to in section 90 or section 90A;

(d) Any information made available to the AO under the Scheme notified under section 135A; or

(e) Any information which requires action in consequence of the order of a Tribunal or a Court. (f) Any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of section 133A, on or after 01-09

The 2025 Act has brought various changes in the reassessment, which are as follows:

The Explanation to section 147 of the ITA provides that the AO can assess or reassess all those incomes that come to his notice subsequently in the course of such a proceeding, even if the procedure prescribed in section 148A was not followed. Clause 279(2) of the new act expands the scope by validating the proceedings even if the notice is not issued under clause 280 (corresponding to section 148 of the ITA) and a sanction for the issue of notice is not obtained under clause 284 (corresponding to section 151 of the ITA).

The new act expands the scope of the term “information” to initiate the reassessment. It shall also include the directions given by the Approving Panel declaring the arrangement as an impermissible avoidance arrangement and any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law.

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The old act provides that if the AO receives information in a faceless manner under the e-Verification Scheme, 2021 (notified under section 135A of the old act), the notice can be issued without following the procedure under section 148A of the old act. In such cases, prior approval of the specified authority is mandatory before issuing the notice under Section 148 of the old act.

The two situations have been added where no such notice is required to be issued, and prior approval of the specified authority is mandatory before issuing the notice, first, where any directions are given by the Approving Panel declaring the arrangement as an impermissible avoidance arrangement and second, any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law.

The limitation period to issue a show-cause notice under clause 281 of the new act (corresponding to section 148A of the old act) has been increased from 3 Years and 5 Years to 4 Years and 6 Years, respectively.

The limitation period to issue a notice for reassessment under clause 280 of the new act (corresponding to section 148 of the old act) has been increased from “3 Years 3 Months” and “5 Years 3 Months” to “4 Years 3 Months” and “6 Years 3 Months,” respectively.

No notice under clause 280 of the new act (corresponding to section 148 of the old act) or clause 281 of the new act (corresponding to section 148A of the old act) shall be issued within one year from the end of any tax year.

Section 150 of the ITA provides that the notice under section 148 for re-assessment may be issued at any time for the purpose of giving effect to any finding or direction contained in an order passed by any authority in any proceeding by way of appeal, reference or revision or by a Court. A new circumstance has been added in its corresponding clause 283 of the new act, where the limitation period shall not apply when any directions are given by the Approving Panel declaring the arrangement as an impermissible avoidance arrangement.

There is no change in the limitation period to complete the assessment, except that the limitation period to give effect to appeal results has been extended from 3 months to 6 months, while the total limitation period after extension shall remain 9 months.

Faceless Assessment

Faceless assessment means the assessment proceedings are conducted electronically in an “e-proceeding” facility through the assessee’s registered account in the designated portal. Designated portal means the web portal designated as such by the Principal Chief Commissioner or Principal Director General, in charge of the National Faceless Assessment Centre.

The provision provides that the assessment, re-assessment or recomputation under Section 143(3), Section 144, or Section 147 shall be made in a faceless manner in respect of the specified territorial areas, persons, income or class of cases.

For faceless assessment, the CBDT is empowered to set up the following centres and units by specifying their respective jurisdiction: (a) National Faceless Assessment Centre (NFAC); (b) Assessment Units (AU); (c) Verification Units (VU); (d) Technical Units (TU); and (e) Review Units (RU).

Summary of Key Changes

The Income-tax Act, 2025 reimagines assessment not just as a procedural formality but as a time-bound statutory obligation. By codifying clear, uniform, and digitally aligned timelines for issuing notices and completing assessments, it restores procedural integrity and taxpayer confidence. For professionals, it demands adaptation—but rewards it with clarity, efficiency, and reduced litigation.

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