Section 245D: Procedure on Receipt of an Application under Section 245C
Section 245D prescribed how the Income-tax Settlement Commission scrutinised and decided settlement applications, including preliminary admission, departmental reports, final orders, payment obligations and rectification. The historical procedure must now be read with the Finance Act, 2021 transition and subsequent legislation.
What is Section 245D of the Income-tax Act, 1961?
Section 245D established the statutory procedure following an application under section 245C. A settlement application historically required a full and true disclosure of previously undisclosed income, the manner of deriving that income, and the additional tax payable. Section 245D then regulated scrutiny and disposal by the Settlement Commission.
Settlement Commission: the statutory body constituted under section 245B to settle qualifying income-tax cases under Chapter XIX-A before the 2021 closure. Principal Commissioner or Commissioner: the senior income-tax authority whose report and records could be sought in settlement proceedings. Applicant: the assessee seeking settlement under section 245C.
Section 245D procedure: Subsection-by-subsection explanation
Section 245D(1): Preliminary notice and admission
Historically, the Commission had to issue a notice within seven days of receiving the application and decide, within fourteen days from the application date, whether to reject it or allow it to proceed. If no order was passed in that period, the application was deemed permitted to proceed. This preliminary decision did not amount to final settlement.
Section 245D(2), (2A) and (2D): Communication and historical transitional cases
Under subsection (2), the preliminary order was communicated to the applicant and the relevant tax Commissioner. Subsections (2A) and (2D) contained special transitional conditions for applications around 1 June 2007, including payment deadlines tied to 31 July 2007. These are historical provisions, not current filing windows.
Section 245D(2B) and (2C): Commissioner's report and validity review
Under subsection (2B), a report was sought from the Principal Commissioner or Commissioner, ordinarily within thirty days of an application being allowed to proceed, and the authority was given thirty days to submit it. Subsection (2C) provided for a further validity review, with a fifteen-day decision period after a timely report and a right of hearing before an application could be declared invalid. If the report was not furnished in time, the Commission could proceed without it.
Section 245D(3): Further inquiry or investigation
After reviewing the records, the Commission could direct further inquiry or investigation by the Commissioner. The statutory text provided a ninety-day reporting period, and permitted proceedings to continue without a delayed report.
Section 245D(4): Final settlement order
Following examination of records, reports and evidence, and after an opportunity of hearing to the applicant and the tax authority, the Commission could pass an order on matters covered by the application and related matters identified in the Commissioner's report.
Section 245D(4A): Time limit for final order
Different statutory periods applied by application date: historical 2007 transitional applications had a 31 March 2008 deadline; applications made from 1 June 2007 but before 1 June 2010 generally had a twelve-month period from the end of the filing month; and applications made on or after 1 June 2010 had an eighteen-month period from that month's end. These are historical deadlines and must not be mistaken for new-application deadlines.
Settlement terms, interest, rectification and void settlements
Sections 245D(5) and (6): Bench consideration and settlement terms
Subsection (5) linked consideration of materials and decisions to sections 245BA and 245BD. Subsection (6) required the settlement order to specify tax, penalty or interest payable, the method of payment and other effective terms. A settlement obtained through fraud or misrepresentation was liable to become void.
Section 245D(6A): Interest on unpaid settlement tax
Under the historical provision, tax remaining unpaid after 35 days from receipt of the settlement order attracted simple interest at 1.25% per month or part of a month, even where instalments or extended payment time had been allowed. Application of this rule to a particular legacy matter requires checking its governing order and transitional provisions.
Section 245D(6B): Rectification of mistakes
Subsection (6B) dealt with rectification of a mistake apparent from the record. The historical text set six-month periods for action and applications and required notice and hearing where an amendment could modify the applicant's liability. Rectification is not a general opportunity to reopen the merits of a settlement.
Sections 245D(7) and (8): Revival and assessment consequences
Where a settlement became void because of fraud or misrepresentation, subsection (7) provided for revival of proceedings at the earlier stage and prescribed a special completion period. Subsection (8) clarified the application of certain assessment time limits to settlement orders and consequential proceedings.
2021 closure, Interim Boards and the Income-tax Act, 2025
The Finance Act, 2021 discontinued the former Income-tax Settlement Commission with effect from 1 February 2021. Transitional provisions included section 245AA for Interim Boards for Settlement and section 245M concerning pending applications and specified options. An Interim Board is not simply a continuation of the former Chairman-and-Bench arrangement; the specific statutory modifications and notifications governing legacy applications must be consulted.
The Income-tax Act, 2025, which came into force on 1 April 2026, replaced the 1961 Act prospectively subject to its repeal and savings provisions. Section 245D is therefore principally relevant to historical and saved proceedings, rather than a new settlement filing route. For a pending matter, confirm the applicable assessment year, date of application, statutory savings and relevant orders before relying on a particular deadline or procedure.
Official legal resources
- Income Tax Department - legislation, circulars and notifications
- India Code - official central legislation
- e-Gazette of India - statutory notifications
- Income Tax e-Filing portal
Historical Section 245D text and amendment notes
The following archival material is preserved from the original page for reference. It reflects historical wording and amendment footnotes; use current official legislation and savings provisions to determine its application to a specific case.
Show original Section 245D provisions and amendment notes
1 (1) On receipt of an application under section 245C, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the application, by an order in writing, reject the application or allow the application to be proceeded with:
Provided that where no order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with.
2 * * * * * (2) A copy of every order under sub-section (1) shall be sent to the applicant and to the 3 Principal Commissioner or Commissioner.
4 (2A) Where an application was made under section 245C before the 1st day of June, 2007, but an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007.
Explanation.-In respect of the applications referred to in this sub-section, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1).
(2B) The Settlement Commission shall,-
(i) in respect of an application which is allowed to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or
(ii) in respect of an application referred to in sub-section (2A) which is deemed to have been allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007, call for a report from the 3 Principal Commissioner or Commissioner, and the 3 Principal Commissioner or Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission.
(2C) Where a report of the 3 Principal Commissioner or Commissioner called for under sub-section (2B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the 3 Principal Commissioner or Commissioner:
Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard:
Provided further that where the 5 Principal Commissioner or Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the 5 Principal Commissioner or Commissioner.
(2D) Where an application was made under sub-section (1) of section 245C before the 1st day of June, 2007 and an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, allowing the application to have been proceeded with, has been passed before the 1st day of June, 2007, but an order under the provisions of sub-section (4), as they stood immediately before their amendment by the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall not be allowed to be further proceeded with unless the additional tax on the income disclosed in such application and the interest thereon, is, notwithstanding any extension of time already granted by the Settlement Commission, paid on or before the 31st day of July, 2007.
6 (3) The Settlement Commission, in respect of-
(i) an application which has not been declared invalid under sub-section (2C); or
(ii) an application referred to in sub-section (2D) which has been allowed to be
further proceeded with under that sub-section, may call for the records from the
5 Principal Commissioner or Commissioner and after examination of such records,
if the Settlement Commission is of the opinion that any further enquiry or
investigation in the matter is necessary, it may direct the 5 Principal
Commissioner or Commissioner to make or cause to be made such further enquiry or
investigation and furnish a report on the matters covered by the application and
any other matter relating to the case, and the 5
Principal Commissioner or Commissioner shall furnish the report within a period
of ninety days of the receipt of communication from the Settlement Commission:
Provided that where the 5 Principal Commissioner or Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report.
(4) After examination of the records and the report of the 5 Principal Commissioner or Commissioner, if any, received under-
(i) sub-section (2B) or sub-section (3), or
(ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the 5 Principal Commissioner or Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the 7 Principal Commissioner or Commissioner.
(4A) The Settlement Commission shall pass an order under sub-section (4),- (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008;
(ii) in respect of an application made on or after the 1st day of June, 2007 8 but before the 1st day of June, 2010, within twelve months from the end of the month in which the application was made;
9 (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made.
10 (5) Subject to the provisions of section 245BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of section 245BD shall apply.
(6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of 11 tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.
12 (6A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at 13 one and one-fourth per cent. for every month or part of a month on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.
14 (6B) The Settlement Commission may, with a view to rectifying any mistake
apparent from the record, amend any order passed by it under sub-section (4)-
(a) at any time within a period of six months from the end of the month in which
the order was passed; or
(b) at any time within the period of six months from the end of the month in which an application for rectification has been made by the Principal Commissioner or the Commissioner or the applicant, as the case may be:
Provided that no application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of six months from the end of the month in which an order under sub-section (4) is passed by the Settlement Commission:
Provided further that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Principal Commissioner or Commissioner of its intention to do so and has allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard.
(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void.
15 (8) For the removal of doubts, it is hereby declared that nothing contained in section 153 shall apply to any order passed under sub-section (4) or to any order of assessment, reassessment or recomputation required to be made by the 16 Assessing Officer in pursuance of any directions contained in such order passed by the Settlement Commission 17 and nothing contained in the proviso to sub-section (1) of section 186 shall apply to the cancellation of the registration of a firm required to be made in pursuance of any such directions as aforesaid.
--------------------
1. Subs. by Act 22 of 2007, s. 64, for sub-section (1) (w.e.f. 1-6-2007).
2. Sub-section (1A) omitted by Act 49 of 1991, s. 66 (w.e.f. 27-9-1991).
3. Subs. by Act 25 of 2014, s. 4, for "Commissioner" (w.e.f. 1-6-2013).
4. Subs. by Act 22 of 2007, s. 64, for sub-sections (2A), (2B), (2C) and (2D) (w.e.f.
1-6-2007)
5. Subs. by Act 25 of 2014, s. 4, for "Commissioner" (w.e.f. 1-6-2013).
6. Subs. by Act 22 of 2007, s. 64, for sub-sections (3), (4) and (4A) (w.e.f.
1-6-2007).
7. Subs. by Act 25 of 2014, s. 4, for "Commissioner" (w.e.f. 1-6-2013).
8. Ins. by Act 14 of 2010, s. 47 (w.e.f. 1-4-2010).
9. Ins. by s. 47, ibid. (w.e.f. 1-6-2010).
10 Ins. by Act 11 of 1987, s. 61 (w.e.f. 1-6-1987).
11. Subs. by s. 61, ibid., for "tax or penalty" (w.e.f. 1-6-1987).
12. Ins. by Act 67 of 1984, s. 41 (w.e.f. 1-10-1984).
13. Subs. by Act 22 of 2007, s. 64, for "fifteen per cent. per annum" (w.e.f.
1-4-2008).
14. Subs. by Act 20 of 2015, s. 59, for sub-section (6B) (w.e.f. 1-6-2015).
15. Ins. by Act 67 of 1984, s. 41 (w.e.f. 1-10-1984).
16. Subs. by Act 4 of 1988, s. 2, for "Income-tax Officer" (w.e.f. 1-4-1988).
17. Ins. by Act 11 of 1987, s. 61 (w.e.f. 1-6-1987).
Frequently asked questions
Can a taxpayer file a fresh application before the old Settlement Commission?
No. The Income-tax Settlement Commission ceased to operate with effect from 1 February 2021 and fresh applications under the former settlement mechanism are not accepted.
What happens to settlement applications pending on 31 January 2021?
The Finance Act, 2021 introduced a transitional framework involving Interim Boards for Settlement and the provisions of sections 245AA and 245M. The precise treatment depends on the application and relevant statutory or notified directions.
What did section 245D(1) provide?
Historically, the Settlement Commission issued notice within seven days and decided within fourteen days whether an application could proceed; inaction within the statutory period resulted in deemed permission to proceed.
Could a settlement become void?
Yes. Section 245D(6) provided that settlement could become void if obtained through fraud or misrepresentation, with consequences for revival of proceedings under section 245D(7).
This article provides general legal information, not case-specific tax advice. Statutory amendments, notifications and court decisions may affect particular proceedings.