Enforcement of Reporting Obligations by a non-resident having liaison office : Clause 460 of Income Tax Bill, 2025 vs. Section 271GC of Income Tax Act, 1961

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....ns-section 505 of the Income Tax Bill, 2025 and section 285 of the Income Tax Act, 1961. This commentary provides a comprehensive legal analysis of Clause 460, examines its objective and practical implications, and offers a detailed comparative analysis with Section 271GC, highlighting similarities, differences, and the potential impact of the legislative transition from the 1961 Act to the proposed 2025 Bill. Objective and Purpose The legislative intent behind both Clause 460 and Section 271GC is rooted in the need to enforce timely and accurate submission of statements required under the Income Tax laws. The statements in question typically pertain to information returns or disclosures that are crucial for tax administration, transparen....

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....law. The provision covers both willful and inadvertent failures, making it a strict liability penalty in nature. 2. Nature and Quantum of Penalty The penalty is bifurcated based on the duration of the default: * Short-term default (up to three months): The penalty is calculated at a rate of Rs. 1,000 per day of continued failure. This daily penalty structure is intended to incentivize prompt compliance and to ensure that the penalty is proportionate to the duration of default. * Long-term default (beyond three months): Where the failure extends beyond three months, a flat penalty of Rs. 1,00,000 is imposed. This acts as a cap and a significant deterrent against prolonged non-compliance. 3. Discretion of Assessing Officer The provisi....

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....5 Bill). Textual Comparison Clause 460 of the Income Tax Bill, 2025 Section 271GC of the Income Tax Act, 1961 If a person required to furnish statement u/s 505, fails to do so within the period prescribed under that section, the Assessing Officer may impose on him, a penalty of - (a) one thousand rupees for every day for which the failure continues, if the period of failure does not exceed three months; or (b) one lakh rupees in any other case. If any person who is required to furnish statement u/s 285, fails to do so within the period prescribed under that section, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of - (a) one thousand rupees for every day for which the failure continues, if....

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....Section 271GC in Clause 460 indicates a legislative intent to maintain continuity in the penalty regime for failure to submit statements, while updating the statutory framework to reflect contemporary tax administration needs. The penalty quantum and structure are designed to balance deterrence with proportionality, ensuring that penalties are significant enough to deter non-compliance while not being excessively punitive. Compared to international practices, the penalty structure is relatively moderate, with some jurisdictions imposing higher penalties or additional sanctions (such as prosecution) for non-compliance with reporting obligations. However, the Indian approach reflects a calibrated policy choice, focusing on monetary penalties....