Income Tax 2025

Appearance

Penalty for furnishing inaccurate statement of financial transaction or reportable account. ​

455(1) ​

The prescribed income-tax authority referred to in section 508 may direct that a person required to furnish a statement under sub-section (1) of the said section shall pay penalty of fifty thousand rupees, if such person—

  • (a) provides inaccurate information in the statement or fails to furnish correct information within the period specified under section 508(8); or
  • (b) fails to comply with the due diligence requirement under section 508(9).

455(2) ​

The prescribed income-tax authority referred to in section 508, may direct that a reporting financial institution referred to in sub-section (1)(k) of the said section, shall, in addition to the penalty under sub-section (1) of this section, if any, pay a sum of five thousand rupees for every inaccurate reportable account, if––

  • (a) the said institution provides inaccurate information in the statement required to be furnished under section 508(1); and
  • (b) the inaccuracy in the said statement is due to false or inaccurate information furnished by the holder or holders of the relevant reportable account or accounts.

455(3) ​

The reporting financial institution shall be entitled to––

  • (a) recover the amount paid under sub-section (2) on behalf of the reportable account holder; or
  • (b) retain an amount equal to the sum so paid out of any moneys that may be in its possession, or may come to it from every such account holder.
Explanation

Section Summary: ​

Section 455 of the new income tax law imposes penalties on individuals or entities (such as financial institutions) for providing inaccurate information in financial transaction statements or reportable accounts. It also outlines the consequences for failing to comply with due diligence requirements under Section 508. The section aims to ensure accuracy and compliance in reporting financial information to tax authorities.

Key Changes: ​

  1. Introduction of Penalties for Inaccurate Reporting: The section introduces specific penalties for providing inaccurate information or failing to comply with due diligence requirements under Section 508.
  2. Additional Penalty for Financial Institutions: Financial institutions face an additional penalty of ₹5,000 per inaccurate reportable account if the inaccuracy is due to false or inaccurate information provided by the account holder(s).
  3. Recovery Mechanism for Financial Institutions: Financial institutions are allowed to recover or retain the penalty amount from the account holder(s) responsible for the inaccuracy.

Practical Implications: ​

  1. For Individuals and Entities: Those required to furnish financial statements must ensure accuracy and timely submission to avoid a penalty of ₹50,000.
  2. For Financial Institutions: They must exercise due diligence in verifying account holder information. Failure to do so could result in penalties of ₹5,000 per inaccurate account, in addition to the ₹50,000 penalty.
  3. Account Holders: If a financial institution incurs a penalty due to inaccurate information provided by an account holder, the institution can recover the penalty amount from the account holder.

Critical Concepts: ​

  1. Due Diligence Requirement (Section 508(9)): This refers to the obligation of financial institutions to verify and ensure the accuracy of information provided by account holders.
  2. Reportable Account: An account that must be reported to tax authorities under Section 508(1), typically involving foreign financial accounts or transactions.
  3. Penalty Structure:
    • ₹50,000 for inaccurate statements or non-compliance with due diligence.
    • ₹5,000 per inaccurate reportable account for financial institutions, if the inaccuracy is due to the account holder.

Compliance Steps: ​

  1. Ensure Accuracy: Verify all information provided in financial statements or reportable accounts.
  2. Timely Submission: Submit statements within the period specified under Section 508(8).
  3. Due Diligence: Financial institutions must implement robust processes to verify account holder information.
  4. Recovery Mechanism: Financial institutions should establish procedures to recover penalties from account holders if applicable.

Examples: ​

  1. Scenario 1: A financial institution fails to verify the tax residency status of an account holder and reports inaccurate information. The institution is penalized ₹50,000 for non-compliance with due diligence and an additional ₹5,000 for the inaccurate account.
  2. Scenario 2: An individual provides incorrect details about their foreign bank account to their financial institution. The institution reports this inaccurately and is penalized ₹5,000 per account. The institution then recovers this amount from the individual’s account balance.

This section emphasizes the importance of accurate reporting and due diligence, with clear penalties for non-compliance.