Section 455 Penalty for furnishing inaccurate statement of financial transaction or reportable account.

Income-tax Act, 2025

At a Glance

Clause 455 of the Income Tax Bill, 2025 - (Old Version). It sets penalties for furnishing inaccurate statements of financial transactions or reportable accounts by persons required to file such statements, and additional per-account penalties on reporting financial institutions where inaccuracies arise. It affects taxpayers, reporting financial institutions, and the tax department. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 455 is linked to section 508 of the same Bill (referenced repeatedly). The clause is placed under the PENALTIES chapter and is titled "Penalty for furnishing inaccurate statement of financial transaction or reportable account." The provision targets persons required to furnish statements u/s 508(1) and reporting financial institutions referred to in section 508(1)(k). The clause provides monetary penalties and post-payment recovery rights for reporting financial institutions.

Definitions or explanatory material: Not stated in the document. The text assumes the reader understands terms such as "prescribed income-tax authority," "reporting financial institution," "statement," "reportable account," and the cross-referenced provisions in section 508.

Statutory Provision Mode

Text & Scope

Clause 455(1): The prescribed income-tax authority referred to in section 508 may direct that a person required to furnish a statement u/s 508(1) shall pay a penalty of fifty thousand rupees where either (a) the person provides inaccurate information in the required statement or fails to furnish correct information within the period specified u/s 508(8); or (b) the person fails to comply with the due diligence requirement u/s 508(9).

Clause 455(2): The prescribed income-tax authority referred to in section 508 may direct that a reporting financial institution referred to in section 508(1)(k) shall, in addition to any penalty under sub-section (1), pay a sum of five thousand rupees for every inaccurate reportable account where (a) the institution provides inaccurate information in the statement required u/s 508(1); and (b) the inaccuracy is due to false or inaccurate information furnished by the holder(s) of the relevant reportable account(s).

Clause 455(3): The reporting financial institution is entitled to either (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 in its possession or which may come to it from the relevant account holder(s).

Interpretation

Legislative intent and interpretive principles indicated by the text: The clause seeks to penalise both the reporting obligation and failures of due diligence, while also recognising a secondary liability for the reporting financial institution when inaccuracies arise due to account-holders' false information. The separate per-account monetary penalty under sub-section (2) indicates a legislative aim to calibrate penalties to the quantum of inaccurate accounts, creating a specific deterrent for systemic or repeated inaccuracies. The provision of recovery/retention rights under sub-section (3) demonstrates an intent to allow financial institutions to pass on the burden to the account-holder responsible for the inaccuracy.

Exceptions/Provisos

No explicit exceptions, provisos or thresholds beyond the conditions in sub-section (2)(b) are provided in the text. The clause ties the imposition of the per-account penalty to the causation proviso that the inaccuracy must be due to false or inaccurate information furnished by the account-holder(s). Other carve-outs or mitigations are Not stated in the document.

Illustrations

• Example 1: A person required to furnish a report u/s 508(1) submits a statement with inaccurate transaction details. If the prescribed authority finds the inaccuracy or the person fails to correct the information within the period u/s 508(8), the authority may direct a penalty of Rs.50,000 on that person. (This follows clause 455(1)(a)).
• Example 2: A reporting financial institution furnishes a list of reportable accounts u/s 508(1) and some accounts contain incorrect residency information provided by the account-holders. If the inaccuracy stems from false information provided by the account-holders, the authority may direct the institution to pay Rs.5,000 per inaccurate reportable account; the institution may then recover that amount from the respective account-holders or retain it from funds attributable to them. (This follows clause 455(2)-(3)).
• Example 3: A person fails to conduct the due diligence required u/s 508(9). The prescribed authority may impose the Rs.50,000 penalty under clause 455(1)(b). Further clarifying facts (e.g., scale of failure) are Not stated in the document.

Interplay

The clause explicitly cross-references section 508(1), section 508(1)(k), section 508(8) and section 508(9). The substantive application therefore depends on definitions, thresholds, due-diligence standards, timelines and the identity of "prescribed income-tax authority" as set out in section 508. Any rules, notifications or circulars that operationalise section 508 are not cited in this clause and are Not stated in the document. The clause does not specify procedures for adjudication, appeal, mitigation, or compounding of the penalty; such mechanisms are Not stated in the document.

Differences Between the Two Provisions and Practical Impact

Comparison of Section 455 of the Income-tax Act, 2025 with Clause 455 of the Income Tax Bill, 2025 - (Old Version) shows one substantive drafting change in the authority exercised under sub-section (2):

• Authority wording in sub-section (2):
  • Bill (Old Version): uses "may direct that a reporting financial institution... shall... pay a sum of five thousand rupees for every inaccurate reportable account".
  • Act (Section 455): uses "shall direct that a reporting financial institution... shall, in addition to the penalty under sub-section (1) of this section, if any, pay a sum of Rs.5000 for every inaccurate reportable account".
• Other language and monetary quantum (Rs.50,000 and Rs.5,000) are identical in substance and placement; sub-section numbering and cross-references mirror each other otherwise.

Practical impact of this change:

• The change from "may direct" (discretionary) in the Old Version to "shall direct" (mandatory) in the enacted Section 455 makes the imposition of the Rs.5,000 penalty on reporting financial institutions mandatory where the statutory preconditions in sub-section (2)(a) and (b) are met. Under the Bill's language, the authority could choose whether to impose that additional penalty; under the enacted provision, the authority must impose it.
• This increases certainty of liability for reporting financial institutions and reduces administrative discretion of the prescribed income-tax authority in respect of the additional per-account penalty. It may lead to more predictable enforcement outcomes, higher aggregate penalties collected, and a stronger compliance incentive for financial institutions to verify account-holder information or seek recovery from account-holders promptly.
• Other practical consequences (e.g., recovery and retention rights in sub-section (3), and primary penalty under sub-section (1)) remain the same in text and effect between the two versions.

Practical Implications

• Compliance and risk areas: Persons required to furnish statements u/s 508(1) face a significant fixed penalty (Rs.50,000) for inaccuracies or failures to correct within the specified period, and for non-compliance with due diligence obligations. Reporting financial institutions face an additional per-account risk (Rs.5,000 per inaccurate reportable account) where inaccuracies stem from account-holder-supplied false information. This combination raises exposure for both filing entities and intermediaries.

• Record-keeping/evidence points: To resist or mitigate penalty directions, persons and institutions will need contemporaneous records of information verification, steps taken to correct inaccuracies (including dates and communications u/s 508(8)), due-diligence checklists and outcomes u/s 508(9), and documentation showing the source of account-holder information. The clause explicitly permits recovery by institutions from account-holders; institutions should therefore maintain contractual and transactional records enabling such recovery. The necessity and particulars of these records are implied by the text; detailed formats or retention periods are Not stated in the document.

Key Takeaways

• Clause 455 imposes a Rs.50,000 penalty for furnishing inaccurate statements or failing to comply with due diligence u/s 508.
• It provides an additional, per-account penalty of Rs.5,000 against reporting financial institutions for each inaccurate reportable account where inaccuracy is caused by false or inaccurate information from account-holders.
• Reporting financial institutions are statutorily entitled to recover or retain sums paid under the per-account penalty from the relevant account-holders.
• The clause links penalty liability to procedural timelines and due-diligence requirements in section 508; detailed mechanics for those cross-referenced provisions are Not stated in the document.
• The Bill-version used "may direct" for the per-account penalty, whereas the enacted Section 455 makes imposition mandatory ("shall direct"): this change increases enforceability and reduces administrative discretion. (This difference is observed by comparison with the enacted provision at the source URL referenced separately.)
• No appeal, compounding, or remission procedures are specified in the clause; these aspects are Not stated in the document.

Full Text:

Section 455 Penalty for furnishing inaccurate statement of financial transaction or reportable account.