Finance Bill 2026: DRP Timelines and Assessment Limits Clarified

Clauses 7, 9, 10, 61 and 63 of the Finance Bill, 2026 introduce a comprehensive set of clarificatory amendments to resolve long-standing disputes on the interaction between Dispute Resolution Panel (DRP) timelines and general assessment limitation provisions. The amendments apply to both:

• the Income-tax Act, 1961 (legacy law), and
• the Income-tax Act, 2025 (new law effective from 1 April 2026).

Their central purpose is to restate the legislative intent that:

• general limitation provisions govern the draft order stage, and
• special DRP timelines govern the finalisation stage, operating independently and notwithstanding the general limitation sections.

Background: DRP Framework and the Limitation Conflict

Under section 144C of the Income-tax Act, 1961, where an eligible assessee is proposed to be subjected to adverse variations (e.g. transfer pricing adjustments or non-resident cases):

1. The Assessing Officer (AO) issues a draft assessment order;
2. The assessee may:
   • accept the draft order, or
   • file objections before the DRP within 30 days;
3. Where objections are filed, the DRP issues directions within nine months;
4. The AO passes the final assessment order within one month from the end of the month of acceptance or receipt of DRP directions.

Sections 144C(4) and 144C(13) expressly provide that this one-month period applies “notwithstanding anything contained in section 153 or section 153B”.

Despite this, courts differed on whether the entire DRP process must still fit within the outer limits of sections 153/153B, resulting in conflicting rulings and annulment of assessments on technical grounds.

Clause 7: Clarification of DRP Finalisation Timelines (1961 Act)

What Does Clause 7 Do?

Clause 7 amends section 144C by inserting:

• sub-sections (4A) and (4B) (where no objections are filed), and
• sub-sections (13A) and (13B) (where DRP directions are issued).

These provisions clarify and deem that:

• If the draft assessment order is issued within the time permitted under section 153 or section 153B, then
• The additional one-month period provided under section 144C(4) or section 144C(13):
  • applies independently, and
  • shall not be curtailed by sections 153 or 153B.

Retrospective Effect

• Sections 144C(4A) and 144C(13A): retrospective from 1 April 2009
• Sections 144C(4B) and 144C(13B): retrospective from 1 October 2009

These clarifications apply notwithstanding any judgment, order or decree of any court.

Implications

• Restores the position that DRP timelines are self-contained
• Neutralises adverse judicial interpretations that compressed DRP timelines
• Applies to past, pending and future proceedings under the 1961 Act

Importantly, no extension of limitation is granted, only the sequencing is clarified.

Clauses 9 and 10: Clarification of Draft Order Stage (1961 Act)

Clause 9 – Section 153

Clause 9 inserts section 153(10) to clarify that:

• The draft assessment order under section 144C(1):
  • may be passed at any time up to the limitation period prescribed in section 153, and
  • shall always be deemed to have been validly passed if issued within that period.

Retrospective effect: 1 April 2009

Clause 10 – Section 153B (Search and Requisition Cases)

Clause 10 inserts section 153B(1A) to provide an identical clarification for search cases:

• Draft orders under section 144C may be issued up to the limitation period under section 153B.

Retrospective effect: 1 October 2009

Combined Effect of Clauses 7, 9 and 10

Together, these amendments clarify that:

• Sections 153/ 153B apply to the draft order stage, and
• Section 144C governs the finalisation stage, with its own overriding timelines.

Clauses 61 and 63: Alignment Under the Income-tax Act, 2025

The Income-tax Act, 2025 introduces a parallel DRP framework under section 275, with general limitation provisions in section 286.

Clause 61: Amendment to Section 275 (2025 Act)

Clause 61 amends sections 275(4) and 275(14) to clarify that:

• The one-month period available to the AO after:
  • acceptance of the draft order, or
  • receipt of DRP directions,
• is in addition to, and not restricted by, the general limitation period under section 286.

Effective from: 1 April 2026

Clause 63: Amendment to Section 286 (2025 Act)

Clause 63 amends section 286(2) to clarify that:

• The draft assessment order under section 275 may be issued
• at any time up to the limitation period specified in section 286.

Effective from: 1 April 2026

Nature and Scope of the Amendments

What These Amendments Do

• Clarify the sequential operation of limitation provisions
• Reinforce the overriding nature of DRP timelines for finalisation
• Eliminate litigation based on technical timing conflicts
• Align the 1961 Act and the 2025 Act on a uniform interpretational basis

What These Amendments Do Not Do

• ❌ Do not extend the statutory limitation period for assessments
• ❌ Do not alter the DRP procedure or taxpayer rights
• ❌ Do not introduce new compliance obligations

These are procedural and clarificatory amendments, not substantive expansions.

Effective Dates at a Glance

Conclusion

Clauses 7, 9, 10, 61 and 63 of the Finance Bill, 2026 decisively clarify the time-limit architecture governing DRP cases. By clearly separating the draft order stage from the finalisation stage and reaffirming the overriding nature of DRP timelines, the amendments restore legislative intent, neutralise conflicting judicial interpretations, and bring long-term procedural certainty.

The changes reinforce a core principle of tax administration: disputes should be resolved on merits, not defeated by technical timing ambiguities.

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