Section 245C: Application for Settlement of Cases
Section 245C set out how an assessee could apply to the Income-tax Settlement Commission, including disclosure of previously undisclosed income, tax payment, eligibility conditions and the method of calculating additional tax. Its historical requirements remain relevant when examining older settlement matters.
What was Section 245C?
Under Section 245C(1), an assessee (a person liable to tax or involved in assessment proceedings) could apply for settlement of a qualifying case before the Settlement Commission. The application had to contain a full and true disclosure of income not previously disclosed to the Assessing Officer, explain the manner in which that income was derived, specify the additional income-tax payable, and provide other prescribed particulars.
A settlement application was not an ordinary income-tax return or appeal: it was a special statutory process for eligible pending assessment matters. The historical scope of a case was defined in Section 245A.
Historical eligibility and minimum tax conditions
Under the version reproduced in the source article, the proviso to Section 245C(1) prescribed the following categories. These figures describe the former settlement scheme; they are not current eligibility criteria for filing a new application.
| Historical category | Additional income-tax requirement |
|---|---|
| Specified search or requisition-related assessment cases under the referenced Sections 153A and 153C | More than Rs. 50 lakh |
| Certain related applicants meeting the detailed conditions in clause (ia) | More than Rs. 10 lakh |
| Other qualifying cases | More than Rs. 10 lakh |
These thresholds concerned additional income-tax, not the amount of undisclosed income. The law also required payment of the applicable additional tax and interest by the filing date, with proof of payment attached. The source text defines related persons by reference to relatives, directors, partners, members and persons with substantial interests in businesses or professions. A substantial interest generally involved at least 20% voting power in a company or at least 20% beneficial entitlement to profits in another business, as specified in the historical Explanation.
How additional income-tax was calculated: Sections 245C(1A) to (1D)
One previous year: Section 245C(1B)
Where no return had been furnished for the relevant year, tax was computed treating the income disclosed in the settlement application as total income. Where a return had already been furnished, tax was calculated on the aggregate of returned income and disclosed income.
Difference in tax: Section 245C(1C)
If a return had been filed, the additional amount generally equalled tax on the aggregate income minus tax on the income already returned. Where no return had been filed, the calculated tax on the disclosed income formed the additional amount, subject to the statutory rules applicable to that case.
More than one previous year: Section 245C(1D)
The calculation was performed separately for each relevant previous year and the resulting additional tax amounts were aggregated.
Application fees, withdrawal and Assessing Officer intimation
Section 245C(2): Prescribed fee
Every settlement application had to be accompanied by the prescribed fee.
Section 245C(3): Restriction on withdrawal
The historical provision stated that an application made under Section 245C(1) could not be withdrawn by the applicant. The separate transitional withdrawal facility under Section 245M should not be confused with this general historical rule.
Section 245C(4): Intimation to the Assessing Officer
The assessee also had to intimate the Assessing Officer, in the prescribed manner, on the date of making the application to the Settlement Commission.
For related procedures, see Section 245D and Section 245B.
Settlement applications after the Finance Act, 2021
The Finance Act, 2021 discontinued the Income-tax Settlement Commission from 1 February 2021 and established a statutory transitional framework. Section 245AA provides for Interim Boards for Settlement. Section 245M addresses specified pending applications and transitional withdrawal matters. The precise position of any older case depends on its filing date, status, applicable notifications and orders.
The Income-tax Act, 2025 came into force on 1 April 2026. It is important to distinguish provisions governing earlier proceedings under the 1961 Act from rules applicable to later tax years, including the repeal and savings framework. Section 245C should not be presented as a live route for filing a new settlement application in 2026.
Official resources
Historical Section 245C text and amendment notes
The following material is retained from the original webpage as a historical reference. It contains older legislative annotations and should be read with subsequent amendments, transitional provisions and the applicable law for the relevant period.
Read the original statutory extracts and editorial amendment notes
1 (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the 2 Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:
3 Provided that no such application shall be made unless,
(i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees,
4 (ia) in a case where
(A) the applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as specified person); and
(B) the proceedings for assessment or re-assessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of the applicant, being a person referred to in section 153A or section 153C, have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees,
(ii) in any other case, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.
4 Explanation. For the purposes of clause (ia),
(a) the applicant, in relation to the specified person referred to in clause (ia), means,
(i) where the specified person is an individual, any relative of the specified person;
(ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member;
(iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual;
(iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member;
(v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the specified person; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;
(vi) any person who carries on a business or profession,
(A) where the specified person being an individual, or any relative of such specified person, has a substantial interest in the business or profession of that person; or
(B) where the specified person being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person;
(b) a person shall be deemed to have a substantial interest in a business or profession, if-
(A) in a case where the business or profession is carried on by a company, such person is, 5 on the date of search, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and
(B) in any other case, such person is, 5 on the date of search, beneficially entitled to not less than twenty per cent of the profits of such business or profession.
(1A) For the purposes of sub-section (1) of this section 2 ***, the additional amount of income-tax payable in respect of the income disclosed in an application made under sub-section (1) of this section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to (1D).
[(1B) Where the income disclosed in the application relates to only one previous year,-
(i) if the applicant has not furnished a return in respect of the total income of that year, then, tax shall be calculated on the income disclosed in the application as if such income were the total income;
(ii) if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income.
[(1C) The additional amount of income-tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub-section (1B) shall be,-
(a) in a case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause;
(b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year;
* * * * *
(1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional amount of income-tax payable in respect of the income disclosed in the application.
* * * * *
(2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed.
(3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant.
[(4) An assessee shall, on the date on which he makes an application under sub-section (1) to the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of having made such application to the said Commission.
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1. Subs. by Act 67 of 1984, s. 40 for sub-section (1) (w.e.f. 1-10-1984).
2. Subs. by Act 4 of 1988, s. 2, for Income tax (w.e.f. 1-4-1988).
3. The proviso subs. by Act 14 of 2010, s. 46, (w.e.f. 1-6-2010).
4. Ins. by Act 8 of 2011, s. 29, (w.e.f. 1-6-2011).
5. Subs. by Act 23 of 2012, s. 90, for "at any time during the previous year" (w.e.f.
1-7-2012).
6. The words, brackets, figures and letters "and sub-sections (2A) to (2D) of
section 245D" omitted by Act 22 of 2007, s. 63 (w.e.f. 1-6-2007).
7. Subs. by Act 11 of 1987, s. 60 for sub-sections (IB) or (IC) (w.e.f.
1-6-1987).
8. Subs. by 22 of 2007, s. 63, for sub-section (IB) (w.e.f. 1-6-2007). Earlier
it was substituted by Act 11 of 1987, s. 60 (w.e.f. 1-6-1987).
9. Clause (c) omitted by Act 22 of 2007, s. 63 (w.e.f. 1-6-2007).
10. Sub-section (1E) omitted by Act 94 of 2002, s. 94 (w.e.f. 1-6-2002).
11. Ins. by Act 22 of 2007, s. 63 (w.e.f. 1-6-2007).
Frequently asked questions
Can a taxpayer submit a new Section 245C application in 2026?
No. The Settlement Commission ceased to operate from 1 February 2021 and fresh applications under the former settlement procedure are not available.
What happened to settlement applications already pending on 31 January 2021?
Eligible pending applications were transferred for disposal under the transitional Interim Board framework, subject to the applicable statutory provisions and notifications.
What disclosure was required under Section 245C?
The applicant had to make a full and true disclosure of income not previously disclosed, explain how it was derived and disclose the additional income-tax payable.
Were the historical minimum additional tax thresholds the same for every case?
No. The historical law distinguished specified search-related cases, certain related applicants and other cases. The relevant thresholds were generally more than Rs. 50 lakh or more than Rs. 10 lakh, depending on the category.
Could a filed settlement application be withdrawn?
Section 245C(3) stated that an application under Section 245C(1) could not be withdrawn; transitional withdrawal provisions must be considered separately.
Editorial update: 27 October 2026. This article provides general legal information; individual cases require examination of the governing law, filings and orders.