Rationalisation of Penalties into Fee
Section 446 of the Act, provides penalty for failure to get accounts audited. It further provides that, if any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or to obtain a report of such audit as required under the aforesaid provision, the Assessing officer may direct that such person shall pay, by way of penalty, lesser of –
i. 0.5% of the total sales, turnover or gross receipts, in the business, or the gross receipts in the profession, for such tax year or years, or
ii. ₹ 150000.
2. Further, section 447 provides penalty for failure to furnish report under section 172 of the Act, where section 172 relates to report from an accountant to be furnished by persons entering into international transaction or specified domestic transactions. Presently, a penalty of ₹ 1,00,000/- is levied for such failure.
3. Further, section 454 provides for penalty for failure to furnish statement of financial transactions or reportable account. Presently, a penalty of ₹ 500 is levied for everyday during which such failure continues. Further, 454(2) provides that if person referred to in sub-section (1), fails to furnish the statement within the period specified in the notice issued under section 508(7), then in that case a penalty of ₹ 1000 is levied for everyday during which the failure continues.
4. In this regard, it is considered that penalties for technical delays should be converted into mandatory fee as fee reduces litigation for technical faults.
5. In view of the above it is proposed to convert following penalties into fee:
I. Penalty under section 446 for failure to get accounts audited is converted to a fee under proposed section of 428(c). Accordingly, Graded fee of Rs. 75,000 and 1,50,000 is proposed depending upon the period of delay. It is pertinent to mention that this penalty under section 446 has been omitted but the same section has been replaced by the penalty for failure to furnish information or for furnishing inaccurate
information on transactions of crypto asset.
II. Penalty under section 447 for failure to furnish report under section 172 is converted to a fee under section 428(4). Graded fee of Rs. 50,000 and 1,00,000 is provided depending upon the period of delay.
III. Penalty under section 454(1) for failure to furnish statement of financial transaction or reportable account is converted to a fee under section 427(3).
6. Further, an upper limit of Rs. 1,00,000/- is also proposed to be made in existing penalty under section 454(2) of the Act.
7. The above amendments will take effect from the 1st day of April, 2026 and shall apply for tax year 2026-27 and subsequent tax years.