Budget 2024 proposes amendments to Section 271FAA of the Income Tax Act to align with the Automatic Exchange of Information (AEOI) framework. Currently, Section 271FAA imposes a penalty of INR 50,000 for providing inaccurate information in statements required under Section 285BA. The amendments clarify that penalties will apply not only for furnishing inaccurate information but also for failing to meet due diligence requirements. Additionally, amendments to Section 273B will allow for non-imposition of penalties if the person proves there was reasonable cause for the failure. These changes are set to take effect from October 1, 2024, providing clarity and ensuring compliance with international standards.
Budget 2024: Amendment of section 271FAA to comply with the Automatic Exchange of Information (AEOI) framework
The existing provisions of the sub-section (1) of section 271FAA of the Act inter-alia, provide that if a person referred to in sub-section (1) of section 285BA of the Act, who is required to furnish a statement under that section, provides inaccurate information in the statement, and where (a) the inaccuracy is due to a failure to comply with the due diligence requirement prescribed under sub-section (7) of section 285BA or is deliberate on the part of that person; or (b) the person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed income-tax authority or such other authority or agency; or (c) the person discovers the inaccuracy after the statement of financial transaction or reportable account is furnished and fails to inform and furnish correct information within the time specified under sub-section (6) of section 285BA, then, the prescribed income-tax authority under sub-section (1) of section 285BA may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.
2. The provisions of section 271FAA apply in case the specified person furnishes inaccurate statement of the financial transactions / reportable account as prescribed under section 285BA of the Act. While reviewing India’s CRS legislative framework under the Automatic Exchange of Information (AEOI) framework, the Global Forum on Transparency and Exchange of Information for Tax purposes has formed a view that the penal sanction available under the said section for inaccuracies would not automatically extend to all cases where due diligence was not correctly done if the information did not lead to incorrect reporting.
3. In view of the foregoing, it is proposed to make the following amendments in section 271FAA to clarify that penalty under the said section shall be attracted in any of the following circumstances–
(i) furnishing inaccurate information in the statement shall be liable;
(ii) failure to comply with due diligence requirement in the statement;
4. Further, in section 273B, it is proposed to add the reference of section 271FAA in order to provide that no penalty shall be imposable for any failure referred to in the said section, if the assessee proves that there was reasonable cause for such failure.
5. This amendment will take effect from the 1st day of October, 2024.
Extract of Clause 79 of Finance Bill 2024
Clause 79 of the Bill seeks to amend section 271FAA of the Income-tax Act, 1961 relating to penalty for furnishing inaccurate statement of financial transaction or reportable account.
The sub-section (1) of the said section, inter alia, provide that if a person referred to in sub-section (1) of section 285BA of the Act, who is required to furnish a statement under that section, provides inaccurate information in the statement, and where such inaccuracy is due to the circumstances specified in clauses (a) to (c) therein, then, the prescribed income-tax authority under sub-section (1) of section 285BA may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.
It is proposed to substitute the said sub-section so as to provide that if a person who is required to furnish a statement under section 285BA, provides inaccurate information in the statement or fails to furnish correct information within the period specified under sub-section (6) of the said section 285BA; or fails to comply with the due diligence requirement prescribed under sub-section (7) of the said section, then, the prescribed income-tax authority referred to in sub-section (1) thereof may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.
This amendment will take effect from 1st October, 2024.
Extract of Clause 82 of Finance Bill 2024
Clause 82 of the Bill seeks to amend section 273B of the Income-tax Act relating to penalty not to be imposed in certain cases.
The said section, inter alia, provides that notwithstanding anything contained in the provisions mentioned therein, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.
It is proposed to amend the said section to give reference of section 271AA also therein so as to allow non-imposition of penalty on any person or assessee for failure under section 271FAA if he proves that there was reasonable cause for such failure.
This amendment will take effect from 1st October, 2024.
It is further proposed to amend the said section to provide the reference of section 271GC also therein.
This amendment will take effect from 1st April, 2025.
Amendment of section 271FAA.
In section 271FAA of the Income-tax Act, for subsection (1), the following sub-section shall be substituted with effect from the 1st day of October, 2024, namely:–
“(1) If a person referred to in sub-section (1) of section 285BA, who is required to furnish a statement under that section,––
(a) provides inaccurate information in the statement or fails to furnish correct information within the period specified under sub-section (6) of the said section; or
(b) fails to comply with the due diligence requirement prescribed under sub-section (7) of the said section,
then, the prescribed income-tax authority referred to in subsection (1) thereof may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.”.
Amendment of section 273B.
In section 273B of the Income-tax Act,––
(a) after the word, figures and letters “section 271FA,”, the word, figures and letters “section 271FAA,” shall be inserted with effect from the 1st day of October, 2024;
(b) after the word, figures and letters “section 271GB,”, the words, figures and letters “section 271GC,” shall be inserted with effect from the 1st day of April, 2025.
