Rule 198 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 198 of the Income-tax Rules, 2026 lets the Dispute Resolution Committee reduce or waive penalty, grant immunity from prosecution, or both — but only where the applicant has paid the tax due on the returned income in full and co-operated, and never where prosecution had already begun.
What the power is
Sub-rule (1) of rule 198 is the operative grant. On receipt of intimation as per paragraph 4(1)(xix) of the e-Dispute Resolution Scheme, 2022, the Dispute Resolution Committee shall, for reasons to be recorded in writing and subject to such conditions as it may think fit to impose, grant to the applicant under section 379:
- reduction or waiver of penalty imposable; or
- immunity from prosecution; or
- both,
in respect of the order which is the subject matter of resolution. The 1962 parallel is rule 44DAC.
Rule 198 reads shall, not may, which looks like a mandatory grant. It is not unconditional. The obligation bites only if it is satisfied that the applicant has done both things in sub-rule (1)(i) and (ii). What the mandatory language removes is the discretion to refuse a compliant applicant for unstated reasons; what survives is the discretion over how much penalty to reduce and what conditions to impose.
The two conditions
| Clause of rule 198(1) | Condition | What it means in practice |
|---|---|---|
| (i) | Paid the tax due on the returned income in full | The benchmark is the returned income, not the assessed income. Tax on the disputed variation need not be paid to qualify — that is the whole point of the dispute |
| (ii) | Co-operated with the Dispute Resolution Committee in the proceedings before it | Conduct before the Committee itself, not conduct during the assessment that produced the order |
Both limbs are joined by "and". Rule 198 gives no partial route: an applicant who has co-operated fully but left part of the tax on the returned income unpaid has not satisfied sub-rule (1).
The prosecution bar
Sub-rule (2) of rule 198: no immunity shall be granted in a case where the proceedings for the prosecution for an offence have been initiated before the date of receipt of the application referred to in paragraph 4(1)(i) of the e-Dispute Resolution Scheme, 2022.
| Timing | Immunity under rule 198 |
|---|---|
| Prosecution initiated before the application is received | Barred by sub-rule (2) |
| Prosecution initiated after that date | Not caught by sub-rule (2) |
Two points of precision. First, the cut-off is the date of receipt of the application, not the date the applicant signed or dispatched it. Second, the bar in rule 198(2) is confined to immunity — it says nothing about reduction or waiver of penalty, which remains available on its own terms under sub-rule (1).
Withdrawal
Sub-rule (3): an immunity, reduction or waiver granted under sub-rule (1) shall stand withdrawn if the person fails to comply with any of the conditions subject to which it was granted — and thereupon the provisions of the Act shall apply as if such immunity or reduction or waiver had never been granted.
The words in rule 198(3) are shall stand withdrawn, not may be withdrawn. No fresh order appears to be needed, and no separate hearing is provided for. The consequence is worse than losing the relief prospectively: the Act applies as if it had never been granted, so limitation, interest and penalty run from the original position. This is why the conditions attached to a grant deserve as much attention as the grant itself.
How rule 198 fits the scheme
- Rule 196 constitutes the Committee, three members per Principal Chief Commissioner region.
- Rule 197 supplies the application — Form No. 119 with a Rs 1,000 fee.
- Rule 198 supplies the relief the Committee can give and the two conditions for it.
- Rule 199 defines "specified order", "specified conditions" and "specified person" for rules 196 to 198.
The e-Dispute Resolution Scheme, 2022 supplies the procedure around rule 198 — its paragraph 4(1)(i) fixes the application whose receipt date sets the prosecution cut-off, and its paragraph 4(1)(xix) fixes the intimation that triggers the power.
Worked example
| Facts | Position under rule 198 |
|---|---|
| Tax on returned income paid in full; applicant co-operated | Committee shall grant reduction or waiver, immunity, or both, with reasons recorded |
| Tax on the disputed variation unpaid | Irrelevant to sub-rule (1)(i) — the test is tax on the returned income |
| Part of the tax on returned income outstanding | Condition (i) fails; the mandatory grant does not arise |
| Applicant ignored the Committee's notices | Condition (ii) fails — no co-operation |
| Prosecution launched two months before the application was received | No immunity — sub-rule (2) bars it |
| Same facts, but the applicant also seeks penalty waiver | Penalty waiver is not barred by sub-rule (2) |
| Relief granted on conditions; a condition later breached | Relief stands withdrawn and the Act applies as if never granted |
Compliance checklist
- Clear the whole tax due on the returned income before the Committee takes up the matter.
- Distinguish that from tax on the variation in dispute, which rule 198 does not require.
- Respond to every communication from the Committee — co-operation is a statutory condition, not a courtesy.
- Check whether prosecution had already been initiated before the application's date of receipt.
- Where it had, plan for penalty relief only, since immunity is unavailable.
- Read every condition attached to the grant and diarise each one.
- Remember that breach makes the relief vanish as if it had never been granted.
- Keep the recorded reasons — rule 198 requires them in writing, and they are the record of what was granted and why.
Common mistakes
- Paying tax on the assessed income in the belief that sub-rule (1)(i) demands it.
- Reading "shall grant" as unconditional and skipping the two conditions.
- Assuming the prosecution bar kills the penalty relief too — it is confined to immunity.
- Dating the prosecution bar from the application's despatch rather than its receipt.
- Treating a granted relief as final when rule 198(3) withdraws it on any breach.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 198 is rule 44DAC, given for tracing only. Verify the current text and the e-Dispute Resolution Scheme, 2022 as it stands before acting on a live matter.