One of the major taxpayer friendly initiatives that the amended Finance Bill 2026 introduced is removing the power to arrest by tax recovery officers for recovering pending tax demand dues. Earlier the tax recovery officer could have used his power and arrested you for failing to pay the outstanding tax demand. Now since this power to arrest for recovering tax dues is removed, the tax recovery officer has to resort to other means like attaching your property, etc to recover the tax due.
The explanatory memorandum to the amended Finance Bill, 2026 said that as per provisions of Income-tax Act, 1961 and also Income-tax Act, 2025, one of the modes available to the Tax Recovery Officer (TRO) to recover revenue is arrest of the assessee and his detention in prison.
The explanatory memorandum to Finance Bill, 2026 said: “It is proposed to do away with such power as other modes of recovery are considered sufficient.”
The amendment is proposed in Income-tax Act, 1961 and also Income-tax Act, 2025. The date of effectivity for Income-tax Act, 1961 shall be from March 30, 2026 and effectivity for Income-tax Act, 2025 shall be April 1, 2026.
An tax expert says: “A large number of writ petitions were filed before the Supreme Court inter alia challenging the validity of the statutory provisions conferring upon the tax officers the power to arrest persons.
These petitions were heard in early 2025 together under two broad categories dealing with powers of Customs Officers and Goods and Services Tax (GST) Officers under their respective enactments i.e. Customs Act, 1962 and the Central Goods and Services Tax Act, 2017. Hon’ble Supreme Court affirmed that tax officers can only exercise arrest powers to the extent permitted by statute.
According to him, the Income tax act 1961 as well as Income tax 2025 does not confer upon the Income Tax officers power to arrest persons. However, part I of third schedule of Income Tax Act 1961 provides procedure of recovery of tax and Clause 4 provides that Tax Recovery officer (TRO) shall proceed to realise the amount by one or more mode (which includes – by arrest of the defaulter and his detention in prison).
He says: “These provisions were included Rule 225 of Income Tax 2026 which were notified on 20th March 2026. After 5 days, amended finance bill 2026 was presented in Lok Sabha and amendment are made in finance bill 2026 to do away with such power.”
Now since the power to arrest is removed, to recover tax demand dues, the TRO can:
- Attach bank accounts ,
- Property can be seized and auctioned
- Movable assets can be seized and sold
- Tax refunds can be adjusted against dues (Section 245)
Source from: https://economictimes.indiatimes.com/markets/expert-view/no-chill-without-volatility-prateek-agrawal-on-playing-the-long-game-in-indias-new-market-era/articleshow/122765564.cms
