TaxTMI 
TaxTMI 
TaxTMI 
Penalties for Non-Compliance in Financial Transaction Reporting : Clause 454 of the Income Tax Bill, 2025 Vs. Section 271FA of the Income-tax Act, 1961
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.... and update the existing penalty framework under section 271FA of the Income-tax Act, 1961, which has been in force (with amendments) since 2004. Both provisions operate within the broader context of tax administration, compliance, and the exchange of financial information for anti-evasion and transparency objectives. The significance of these provisions lies in their role in enforcing the reporting obligations of specified entities and individuals, thereby facilitating the detection of tax evasion, money laundering, and other illicit financial flows. As financial systems and reporting requirements have evolved, so too have the legislative mechanisms for ensuring compliance, as reflected in the transition from Section 271FA to Clause 454. ....
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....ments, etc.) and accounts that are subject to reporting requirements. 2. Penalty for Default (Sub-section 1) Under Clause 454(1), if a person fails to furnish the required statement within the time prescribed u/s 508(2), the prescribed income-tax authority may impose a penalty of Rs. 500 per day for every day of continuing default. The provision is clear in its application: the liability arises immediately upon the lapse of the prescribed deadline, and the penalty accrues daily until compliance is achieved. The use of the term "may impose" indicates a degree of discretion vested in the tax authority. This discretionary power is generally exercised in accordance with principles of natural justice, allowing the defaulting person an opportu....
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....uding principles of notice, hearing, and appeal. The authority must record reasons for imposing the penalty, and the affected person retains the right to challenge the imposition before appellate forums. 5. Legislative Drafting and Clarity Clause 454 is drafted with clarity, specifying the quantum of penalty, the period of default, and the triggering events for enhanced penalties. However, as with all penalty provisions, ambiguities may arise in the interpretation of terms such as "failure," "statement," and the calculation of the period of default (e.g., whether partial compliance or defective statements constitute "failure"). Judicial interpretation and administrative guidance will play a role in resolving such ambiguities. Detailed An....
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....there was reasonable cause for the failure. The interplay between Sections 271FA and 273B has been the subject of judicial scrutiny, with courts generally holding that the authority must consider reasonable cause before imposing penalty. * Opportunity of Hearing: Judicial pronouncements have emphasized the necessity of granting an opportunity of hearing before imposing penalty, in line with principles of natural justice. * Applicability to Non-Residents: Questions have arisen regarding the applicability of the provision to non-resident entities with reporting obligations u/s 285BA. 4. Procedural Aspects The procedural framework u/s 271FA is similar to Clause 454, with penalty being levied for failure to comply within the prescribed ti....
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....or require clarification Scope of "Person" Not defined in Clause 454 Defined in Income-tax Act Presumed to be retained; clarity needed Key Observations * Substantive Continuity: The penalty regime under Clause 454 is substantively identical to Section 271FA, with no material change in penalty quantum, escalation mechanism, or triggering events. The primary changes are in the referencing of sections and modernization of language. * Potential Gaps: The explicit reference to "reasonable cause" and the exemption u/s 273B are not evident in Clause 454. If not incorporated elsewhere in the new tax code, this may represent a narrowing of taxpayer protection, unless the drafters intend to address it in a different provision or via rule....
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....ipients of notices u/s 508(7) (or section 285BA(5) under the 1961 Act) must respond promptly to avoid escalation of penalties. The right to be heard and to present evidence of reasonable cause remains a critical procedural safeguard. Conclusion Clause 454 of the Income Tax Bill, 2025, represents a continuation and modernization of the penalty regime established under Section 271FA of the Income-tax Act, 1961. The core features-daily penalties for default, escalation upon continued non-compliance, and discretionary imposition-are retained, reflecting legislative intent to maintain a robust enforcement mechanism for financial transaction reporting. The primary differences are in the updating of section references and the modernization....