The Finance Bill, 2026 proposes a major rationalisation of compliance defaults by converting several penalties for technical or procedural delays into mandatory, graded fees, with the objective of reducing litigation and bringing certainty. Existing penalties for failure to get accounts audited (section 446), failure to furnish an accountant’s report for international or specified domestic transactions (section 447), and failure to file statements of financial transactions or reportable accounts (section 454(1)) are proposed to be replaced with fixed fees under substituted sections 427 and 428. The new regime introduces daily fees or graded slabs linked to the period of delay, along with clear monetary caps, such as a maximum of ₹1,00,000 for delayed filing of financial transaction statements. Section 447 is proposed to be omitted entirely, while section 454 is substituted to retain a capped penalty only where non-compliance continues even after a statutory notice. These changes will apply from 1 April 2026, for tax year 2026-27 onwards.
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. 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.
[Clause 83, 88, 89]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 83 of the Bill seeks to substitute sections 427 and 428 of the Income-tax Act relating to fee for default in furnishing statements and fee for default in furnishing return of income.
The proposed section 427 provides for fee for default in furnishing statements.
Sub-section (1) of the proposed section 427 provides that without prejudice to the provisions of this Act, where any person fails to deliver or cause to be delivered a statement as per section 397(3)(b) within the time as may be provided by rules therein, he shall be liable to pay by way of fee, a sum of ₹200 for every day for which such failure continues.
Sub-section (2) of the proposed section 427 provides that the amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible and be paid before delivering or causing to be delivered the statement, as per sub-section (1).
Sub-section (3) of the proposed section 427 provides that without prejudice to the provisions of this Act, if any person who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement within the time as may be provide by rules under section 508(2), he shall be liable to pay by way of fee, a sum of ₹ 200 for every day for which such failure continues and such fee shall not exceed a sum of ₹ 100000.
The proposed section 428 provides for fee for default in furnishing return of income, audited accounts and reports.
Clause (a) of the proposed section 428 provides that where any person required to furnish a return of income under section 263, fails to do so within the due date as specified in subsection (1) of said section, he shall be liable to pay by way of fee, a sum of ₹ 1000, if the total income of such person does not exceed ₹ 500000 and a sum of ₹ 5000, in any other case.
Clause (b) of the proposed section 428 provides that where any person furnishes a return of income under section 263(5) beyond nine months from the end of relevant tax year, he shall liable to pay by way of fee, a sum of ₹ 1000, if the total income of such person does not exceed ₹ 500000 and a sum of ₹ 5000, in any other case.
Clause (c) of the proposed section 428 provides that where any person fails to get his accounts audited for any tax year or years and furnish the report of such audit as required under section 63, he shall be liable to pay by way of fee, a sum of ₹ 75000 for a delay upto one month for which such failure continue and a sum of ₹ 150000 thereafter.
Clause (d) of the proposed section 428 provides that where any person fails to furnish a report from an accountant as required by section 172, he shall be liable to pay by way of fee, a sum of ₹ 50000 for a delay up to one month for which such failure continues and a sum of ₹ 100000 thereafter.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 88 of the Bill seeks to omit section 447 of the Income-tax Act relating to penalty for failure to furnish report under section 172.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 89 of the Bill seeks to substitute section for 454 of the Income-tax Act, 2025 relating to penalty for failure to furnish statement or reportable account.
The proposed section provides Penalty for failure to furnish statement of financial transaction or reportable account after notice.
The said section provides that where any person, who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement or reportable account within the period specified in the notice issued under section 508(7), the income-tax authority prescribed under section 508(1) may impose on him, a penalty of ₹ 1000 for every day for which such failure continues, beginning from the day immediately after the time specified in such notice for furnishing such statement or reportable account expires and such penalty shall not exceed ₹ 100000.
This amendment will take effect from 1st April, 2026 and accordingly, will apply in relation to the tax year 2026-2027 and subsequent year.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
83. Substitution of new sections for sections 427 and 428.
For sections 427 and 428 of the Income-tax Act, the following sections shall be substituted, namely:––
“427. Fee for default in furnishing return of income, audited accounts and reports.
(1) Without prejudice to the provisions of this Act, where any person fails to deliver or cause to be delivered a statement as per section 397(3)(b) within the time prescribed therein, he shall be liable to pay by way of fee, a sum of ₹ 200 for every day for which such failure continues.
(2) The amount of fee referred to in sub-section (1) shall–
(a) not exceed the amount of tax deductible or collectible; and
(b) be paid before delivering or causing to be delivered the statement, as per sub-section (1).
(3) Without prejudice to the provisions of this Act, where any person who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement within the time prescribed under section 508(2), he shall be liable to pay by way of fee, a sum of ₹ 200 for every day for which such failure continues and such fee shall not exceed a sum of ₹ 100000.
428. Fee for default in furnishing return of income, audited accounts and reports.
Without prejudice to the provisions of this Act, where any person–
(a) required to furnish a return of income under section 263, fails to do so within the due date, as specified under sub-section (1) of the said section, he shall be liable to pay by way of fee,––
(i) a sum of ₹ 1000, if the total income of such person does not exceed ₹ 500000; and
(ii) a sum of ₹ 5000, in any other case;
(b) furnishes a return of income under section 263(5) beyond nine months from the end of relevant tax year, he shall be liable to pay by way of fee,––
(i) a sum of ₹ 1000, if the total income of such person does not exceed ₹ 500000; and
(ii) a sum of ₹ 5000, in any other case;
(c) fails to get his accounts audited for any tax year or years and furnish the report of such audit as required under section 63, he shall be liable to pay by way of fee,––
(i) a sum of ₹ 75000 for a delay up to one month for which such failure continues; and
(ii) a sum of ₹ 150000 thereafter;
(d) fails to furnish a report from an accountant as required by section 172, he shall be liable to pay by way of fee,––
(i) a sum of ₹ 50000 for a delay up to one month for which such failure continues; and
(ii) a sum of ₹ 100000 thereafter.”.
88. Omission of section 447.
Section 447 of the Income-tax Act shall be omitted.
89. Substitution of new section for section 454.
For section 454 of the Income-tax Act, the following section shall be substituted, namely:––
“454. Penalty for failure to furnish statement of financial transaction or reportable account after a notice.
Where any person, who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement or reportable account within the period specified in the notice issued under section 508(7), the income-tax authority prescribed under section 508(1) may impose on him, a penalty of ₹ 1000 for every day for which such failure continues, beginning from the day immediately after the period specified in such notice for furnishing such statement or reportable account expires and such penalty shall not exceed ₹ 100000.”.
