Income Tax 2025

Appearance

Penalty for failure to furnish statement of financial transaction or reportable account. ​

454(1) ​

If a person who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement within the time prescribed under sub-section (2) thereof, the income tax authority prescribed under the said sub-section (1) may impose on him, a penalty of five hundred rupees for every day during which such failure continues.

454(2) ​

If the person referred to in sub-section (1), fails to furnish the statement within the period specified in the notice issued under section 508(7), he shall pay penalty of one thousand rupees for every day during which the failure continues, beginning from the day immediately after the time specified in the such notice for furnishing the statement expires.

Explanation

Section Summary: ​

Section 454 of the new income tax law imposes penalties on individuals or entities who fail to furnish a statement of financial transaction or reportable account as required under Section 508(1). The penalty applies if the statement is not submitted within the prescribed time or after a notice is issued. The purpose of this section is to ensure timely compliance with reporting requirements, which are critical for tax authorities to monitor financial transactions and prevent tax evasion.

Key Changes: ​

  1. Introduction of Daily Penalty: The new law introduces a daily penalty structure for non-compliance, which was not explicitly detailed in the prior income tax act.

    • Initial Failure: ₹500 per day for failing to submit the statement within the prescribed time.
    • Post-Notice Failure: ₹1,000 per day if the statement is not submitted even after a notice is issued under Section 508(7).

  2. Clear Penalty Structure: The penalty amounts and conditions are now explicitly defined, providing clarity on the consequences of non-compliance.

Practical Implications: ​

  1. For Taxpayers and Businesses:

    • Individuals or entities required to submit financial transaction statements (e.g., banks, financial institutions, or businesses) must ensure timely filing to avoid escalating penalties.
    • Non-compliance can lead to significant financial burdens, as penalties accumulate daily.

  2. For Compliance Processes:

    • Taxpayers must monitor deadlines and respond promptly to notices from tax authorities.
    • Systems for tracking and reporting financial transactions must be robust to avoid delays.

Critical Concepts: ​

  1. Statement of Financial Transaction: A report detailing specified financial transactions (e.g., high-value transactions, foreign accounts) that must be submitted to tax authorities.
  2. Reportable Account: Refers to accounts or financial information that must be disclosed under Section 508(1), such as foreign accounts or high-value assets.
  3. Section 508(7): This section allows tax authorities to issue a notice requiring the submission of the statement if it is not filed within the initial deadline.

Compliance Steps: ​

  1. Identify Reporting Obligations: Determine if you are required to submit a statement of financial transactions or reportable accounts under Section 508(1).
  2. Monitor Deadlines: Ensure the statement is filed within the prescribed time to avoid the initial penalty of ₹500 per day.
  3. Respond to Notices: If a notice is issued under Section 508(7), file the statement immediately to avoid the higher penalty of ₹1,000 per day.
  4. Maintain Records: Keep detailed records of financial transactions to facilitate accurate and timely reporting.

Examples: ​

  1. Scenario 1: A bank fails to submit its statement of high-value transactions by the due date of July 31. The tax authority imposes a penalty of ₹500 per day starting August 1. If the bank files the statement on August 10, the total penalty would be ₹5,000 (₹500 × 10 days).

  2. Scenario 2: A taxpayer receives a notice on September 1 to submit a reportable account statement by September 15. If the taxpayer fails to file by September 15, a penalty of ₹1,000 per day applies starting September 16. If the statement is filed on September 20, the total penalty would be ₹5,000 (₹1,000 × 5 days).