Income-tax Act, 1961 / Historical penalty provisions
Section 271BB of the Income-tax Act, 1961: Omitted Penalty for Failure to Subscribe to Eligible Capital
Section 271BB formerly imposed a penalty for failing to subscribe to eligible capital issues under section 88A. The Finance Act, 2025 omitted section 271BB with effect from 1 April 2025. This article explains the former rule, its legislative history and why it no longer operates as a current penalty provision.
Legislation reviewed: 28 October 2026
What was section 271BB?
Section 271BB was placed in Chapter XXI (Penalties Imposable) of the Income-tax Act, 1961. It was linked to a specific investment incentive under section 88A, rather than to capital subscriptions generally. Where the statutory conditions applied, the Joint Commissioner could direct a penalty equal to 20% of the amount not subscribed within the prescribed six-month period.
The wording in older compilations can be misleading if read without its subsequent legislative changes. The parent provision, section 88A, was omitted retrospectively from 1 April 1994, and section 271BB itself was eventually omitted from 1 April 2025.
Historical statutory provision: section 271BB
Whoever fails to subscribe any amount of subscription to the units issued under any scheme referred to in sub-section (1) of section 88A to the eligible issue of capital under that sub-section within the period of six months specified therein, may be directed by the Joint Commissioner to pay, by way of penalty, a sum equal to twenty per cent of such amount.
Important: This is a historical reproduction for research and interpretation. The provision is marked omitted in the official consolidated Income-tax Act, 1961 as amended by the Finance Act, 2025.
Meaning of the former provision
Eligible issue of capital and section 88A
The term referred to a qualifying issue connected to the scheme described in section 88A(1), as it stood when the relevant law operated. It did not mean every issue of shares, debentures or units by any company or fund.
Six-month subscription period
The former provision addressed a failure to subscribe the relevant amount within the six-month period specified in the parent section. Whether an obligation arose depended on the historical scheme and facts.
Penalty rate and competent authority
The prescribed amount was 20% of the shortfall. The historical text named the Joint Commissioner as the penalty authority following a 1998 substitution for Deputy Commissioner.
If a qualifying subscription shortfall had been Rs. 2,00,000 while the provision was applicable, 20% would have equalled Rs. 40,000. This illustration does not imply that a penalty can presently be levied under the omitted provision.
Legislative history and repeal
| Date | Legislative development | Effect |
|---|---|---|
| 1 April 1990 | Finance Act, 1990, section 43 | Inserted section 271BB. |
| 1 April 1994 (retrospective) | Finance (No. 2) Act, 1996 | Omitted parent section 88A retrospectively. |
| 1 October 1998 | Finance (No. 2) Act, 1998 | Substituted Joint Commissioner for Deputy Commissioner. |
| 1 April 2025 | Finance Act, 2025 | Omitted section 271BB. |
| 1 April 2026 | Income-tax Act, 2025 | New income-tax framework commenced; section 271BB has no corresponding operative penalty provision. |
The government's Notes on Clauses for the Finance Bill, 2025 explained that section 271BB had lost relevance because its parent section 88A had already been omitted.
Does section 271BB apply in 2026?
No new penalty arises under section 271BB after its omission. It should not be cited as a current penalty for failure to subscribe to a capital issue. For historical disputes, the exact dates, the legal effect of the retrospective omission of section 88A, the omission of section 271BB, and applicable saving provisions must all be examined. No conclusion about an individual pending case should be drawn from the historical wording alone.
The Income-tax Act, 2025 came into force on 1 April 2026. The official 1961-to-2025 provision navigator identifies section 271BB as redundant rather than assigning it a replacement section.
Frequently asked questions
Is section 271BB still in force?
No. The Finance Act, 2025 omitted it with effect from 1 April 2025.
What was the penalty under section 271BB?
Under the former provision, the penalty was 20% of the amount of the qualifying subscription not made within the specified period.
Why was section 271BB removed?
Section 88A, on which the penalty depended, had been omitted retrospectively from 1 April 1994. The government consequently treated section 271BB as redundant.
Is there a corresponding section in the Income-tax Act, 2025?
The Income Tax Department's section correspondence marks the former section 271BB as redundant, without a replacement penalty section.
Official legislative sources
- Income Tax Department: Income-tax Act, 1961 as amended by Finance Act, 2025 (section 271BB shown as omitted)
- Income Tax Department: historical section 271BB wording
- Finance Act, 1990: insertion of section 271BB
- Income Tax Department: highlights of Finance Act, 2025
- Income Tax Department: 1961-to-2025 provisions navigator
This page is for general legal information and historical reference. Consult the relevant enacted legislation and obtain case-specific advice where a legacy dispute remains pending.