Rule 166 of the Income-tax Rules, 2026

Where this rule sits

Rule 166 gives effect to Section 63, Section 263 and Section 267 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.

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What this rule does

Sub-rule (1) sets out the conditions on which a return of income is to be regarded as defective for the purposes of section 263(7). A return is defective if any one of them is satisfied: all fields, parts, schedules, statements and columns in the return as applicable to the assessee's case have not been duly filled in, including those relating to computation of income chargeable under the applicable heads of income, computation of gross total income and total income; or the audit report referred to in section 63, in auditable cases, has not been furnished prior to the filing of the return; or, where the return is furnished under section 263(6), the details of payment of tax as per section 267 are not duly filled in the return; or the brought forward credit of minimum alternate tax or alternate minimum tax claimed in the return is not in accordance with the carry forward of that credit in the latest return allowed to the assessee.

Sub-rule (2) allows the Board to notify the class or classes of persons to which any of the conditions in clauses (a) to (d) shall not apply, or shall apply with such modifications as may be specified in the notification.

Why it is there

Section 263(7) allows a return to be treated as defective but does not say what makes it so. The rule lists four defects, each of which stops the return from being usable as filed: an incomplete return cannot be processed, an audit report furnished after the return defeats the sequence the Act requires, an updated return without the tax payment details cannot be verified against section 267, and a minimum alternate tax or alternate minimum tax credit claim that does not match the carry forward already allowed is unsupported on the Department's own record.

Who it applies to

• Any person furnishing a return of income that may be examined for defects under section 263(7)
• An assessee in an auditable case, whose audit report under section 63 must precede the return
• A person furnishing an updated return under section 263(6)
• A person claiming brought forward credit of minimum alternate tax or alternate minimum tax
• The Board, which may notify classes of persons for whom a condition does not apply or applies with modifications

The figures, and what each one turns on

What this means in practice

Clause (b) fixes an order of events, not merely a filing obligation: in an auditable case the audit report referred to in section 63 must have been furnished before the return, so a return filed first and an audit report filed afterwards leaves the return defective even though both are eventually on record. Clause (a) is wide — every field, part, schedule, statement and column applicable to the case has to be filled, including the computation of income under each applicable head and of gross total income and total income — so a return with a blank applicable schedule is caught. Clause (d) tests the claim against the Department's own record: the brought forward minimum alternate tax or alternate minimum tax credit must agree with the carry forward allowed in the latest return. Sub-rule (2) is a pointer, not a relaxation: nothing is relaxed until the Board notifies the class of persons and the terms.

An example

A company subject to audit files its return of income on the due date and furnishes the audit report under section 63 a week later. Clause (b) of sub-rule (1) requires the report to have been furnished prior to the filing of the return, so the return is defective as filed, whatever the merits of the computation in it.

Where you meet this rule

In an intimation of a defective return issued after filing, and in the correction the assessee then has to make; a taxpayer meets it as a notice pointing to an unfilled schedule, a missing audit report or a mismatched credit claim.

The words themselves

What people get wrong

• Filing the return first and the audit report afterwards. Clause (b) requires the section 63 audit report to be furnished prior to the filing of the return in auditable cases.
• Treating partly filled schedules as acceptable. Clause (a) requires all fields, parts, schedules, statements and columns applicable to the case to be duly filled in.
• Filing an updated return without the tax payment details. Clause (c) makes a return under section 263(6) defective if the details of payment of tax as per section 267 are not duly filled in.
• Carrying forward a minimum alternate tax or alternate minimum tax credit figure of one's own. Clause (d) requires it to accord with the carry forward allowed in the latest return.
• Assuming a class of taxpayers is already outside a condition. Sub-rule (2) only empowers the Board to notify such a class; until it does, all four conditions apply.