Income-tax Act, 1961 | Chapter XIX-A | Settlement of cases

Section 245B of the Income-tax Act, 1961: Income-tax Settlement Commission

Section 245B provided for the constitution, composition and appointment of members of the Income-tax Settlement Commission. The Commission ceased to operate on or after 1 February 2021. Pending eligible applications were instead dealt with through Interim Boards for Settlement under the transitional provisions.

Current position (October 2026): No fresh settlement application can be made to the former Income-tax Settlement Commission under section 245C on or after 1 February 2021. The Income-tax Act, 2025 came into force on 1 April 2026; saved proceedings relating to earlier tax years require examination of the repeal and savings provisions in section 536 of that Act.

What was the Income-tax Settlement Commission?

The Income-tax Settlement Commission was a statutory body constituted by the Central Government to settle eligible income-tax cases under Chapter XIX-A of the Income-tax Act, 1961. Its jurisdiction and procedures were governed by related provisions, including sections 245A, 245BA, 245C and 245D. This historical framework should not be mistaken for a presently available route for new applications.

Section 245B: Explanation of each provision

Sub-section (1): Constitution

The Central Government was required to constitute a body called the Income-tax Settlement Commission for settling cases under Chapter XIX-A. The proviso inserted by the Finance Act, 2021 expressly provides that the Commission so constituted shall cease to operate on or after 1 February 2021.

Sub-section (2): Composition and administrative location

The Commission consisted of a Chairman and such number of Vice-Chairmen and other members as the Central Government considered appropriate. It functioned within the department of the Central Government dealing with direct taxes. This describes the former Commission, not the composition of an Interim Board.

Sub-section (3): Qualifications and appointments

The Central Government appointed the Chairman, Vice-Chairmen and other members from persons of integrity and outstanding ability with special knowledge of, and experience in, direct taxes and business accounts. If a member of the Central Board of Direct Taxes was appointed to the Commission, that person ceased to be a member of the Board.

Historical amendments retained

Section 245B was affected by amendments including the Finance Act, 1986 (changes to composition and omission of sub-section (2A)), the Finance Act, 1987 (removal of certain words in sub-section (1)), and the Finance Act, 2021 (the cessation proviso). Earlier omitted wording and subsections do not create presently operative powers.

What changed on 1 February 2021?

The Finance Act, 2021 discontinued the Settlement Commission, prohibited fresh applications under section 245C from that date and provided for handling qualifying pending applications through one or more Interim Boards for Settlement.

Section 245AA: Interim Boards for Settlement

Under section 245AA of the 1961 Act, the Central Government could constitute Interim Boards for pending applications. Each board comprised three members of the rank of Chief Commissioner, nominated by the Board; differences of opinion were resolved by majority. This was a transitional mechanism, not a reconstitution of the old Commission under section 245B.

Section 245M: Pending applications and transition

Section 245M addressed pending settlement applications, including the definition of eligible pending cases, withdrawal options, allotment of cases to Interim Boards and the consequences of withdrawal. Whether a particular historical application is covered depends on its filing date, validity and procedural status. Relevant procedural adaptations also appear in section 245D.

Illustration: A taxpayer who filed a qualifying settlement application before 1 February 2021 and had not received the prescribed final order by the relevant cutoff may fall within the transitional framework. A taxpayer seeking to file a new application in 2026 cannot use the discontinued Commission route.

Income-tax Act, 2025: Legal position from 1 April 2026

The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026. Section 245B is a historical provision and should not be presented as establishing an operating Settlement Commission in 2026. Section 536 of the 2025 Act contains repeal and savings rules, including continuation of relevant proceedings for tax years beginning before 1 April 2026 under the earlier law where applicable. Transitional settlement matters should be checked against those savings rules and the particular orders or notifications governing the case; there is no general right to file a fresh application before the former Commission.

Frequently asked questions

Is the Income-tax Settlement Commission still functioning?

No. Section 245B was amended to state that the Commission ceased to operate on or after 1 February 2021.

Can I submit a new settlement application under section 245C?

No new application under the discontinued Chapter XIX-A settlement mechanism could be made on or after 1 February 2021.

Who dealt with applications already pending?

Qualifying pending applications were addressed by Interim Boards for Settlement under sections 245AA and 245M, subject to applicable conditions.

Did the Interim Board have the same composition as the old Commission?

No. Section 245AA provided for three Chief Commissioner-rank members, while section 245B historically provided for a Chairman, Vice-Chairmen and other members.

What happens to an older case after April 2026?

The answer depends on the tax year, procedural history and savings provisions, particularly section 536 of the Income-tax Act, 2025. A case-specific review is required.

Official statutory references

This article provides general statutory information and is not a substitute for advice based on the relevant orders, dates and facts.