Clause 322 Income Tax Bill 2025 removes criminal penalties for liquidators, introduces civil liability framework

Clause 322 of the Income Tax Bill, 2025 updates the legal framework for tax compliance during company liquidation, replacing Section 178 of the Income Tax Act, 1961. The provision requires liquidators to notify tax authorities within thirty days of appointment and restricts asset disposal until tax liabilities are secured. Liquidators face personal liability for non-compliance, capped at the notified tax amount. The clause recognizes the primacy of the Insolvency and Bankruptcy Code, 2016, aligning tax recovery with insolvency proceedings. Unlike the previous regime, criminal sanctions under Section 276A are removed, shifting to civil liability enforcement while maintaining protection for secured creditors and reasonable winding-up expenses.