Penalty for furnishing inaccurate statement of financial transaction (SFT) or reportable account – Budget 2023
Section 285BA of the Act makes it mandatory for a person responsible for registering, or, maintaining books of account or other document containing a record of any specified financial transaction or any reportable account as may be prescribed, under any law for the time being in force, to furnish a statement in respect of such specified financial transaction or such reportable account to the prescribed income-tax authority. Further, vide Finance (No. 2) Act, 2014, section 271FAA was inserted in the Act in Chapter XXI to provide for penalty for furnishing inaccurate statement of financial transaction or reportable account.
2. Self-certifications by reportable persons and the account holders are mandated under the Rule 114H of the Income-tax Rules, 1962 for different purposes. This includes, inter alia, cases where new accounts are opened (to certify the country of tax residence), cases involving curing of indicia for pre-existing accounts (to certify the country of tax residence) and cases of entities to certify whether they are Passive Non-Reporting Financial Entities. While the requirement of having a valid self-certification has been specified in Rule 114H of the Income–tax Rules, 1962, however, there is no penal provision for the submission of a false self-certification which in turn leads to furnishing of an incorrect statement under section 285BA. Therefore, there is a need to introduce a provision for penalizing false self-certification in the Act.
3. It is therefore, also proposed to insert a new sub-section (2) in the said section which shall provide that if there is any inaccuracy in the statement of financial transactions submitted by a prescribed reporting financial institution and such inaccuracy is due to false or inaccurate information submitted by the account holder, a penalty of five thousand rupees shall be imposable on such institution, in addition to the penalty leviable on such financial institution in the said section, if any. This penalty shall be levied by the income tax authority prescribed under sub-section (1) of section 285BA of the Act. Further, the reporting financial institution may recover the amount so paid on behalf of the account holder or retain out of any moneys that may be in its possession or may come to it from every such reportable account holder.
4. It is also proposed to clarify that the reference to the income-tax authority prescribed which shall levy the said penalty in the section 271FAA is the prescribed authority under sub-section (1) of section 285BA.
5. These amendments will take effect from the 1st day of April, 2023.
[Clause 114]
Extract of relevant clause of Finance Bill 2023
Clause 114 of the Bill seeks to amend the section 271FAA of the Income-tax Act relating to penalty for furnishing inaccurate statement of financial transaction or reportable account.
The said section provides for imposition of penalty of fifty thousand rupees on a person for furnishing inaccurate information in the statement of financial transaction or reportable account.
It is proposed to amend the said section to provide that the income-tax authority imposing penalty under the said section shall be the same as the income tax authority prescribed under sub-section (1) of section 285BA.
It is further proposed to insert a new sub-section (2) in the said section to provide that where in the case of a person, referred to in clause (k) of sub-section (1) of section 285BA, who is required to furnish a statement under that section (herein referred to as reporting financial institution) provides inaccurate information in the statement and the inaccuracy in such statement is due to false or inaccurate information furnished by the holder or holders of the relevant reportable account or accounts, the income-tax authority prescribed under sub-section (1) of section 285BA, shall direct that the reporting financial institution shall, in addition to the penalty under sub-section (1), if any, pay a sum of five thousand rupees for every inaccurate reportable account and the reporting financial institution shall be entitled to recover the sum so paid on behalf of such reportable account holder, or to retain out of any moneys that may be in its possession, or may come to it from every such reportable account holder, an amount equal to the sum so paid.
This amendment will take effect from 1st April, 2023.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
114. Amendment of section 271FAA.
Section 271FAA of the Income-tax Act shall be renumbered as sub-section (1) thereof and in sub-section (1) as so renumbered, for the long line, the following shall be substituted, namely:–
“then, the prescribed income-tax authority under subsection (1) of section 285BA may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.
(2) Where in the case of a person, referred to in clause (k) of sub-section (1) of section 285BA, who is required to furnish a statement under that section (herein referred to as the reporting financial institution) provides inaccurate information in the statement and the inaccuracy in such statement is due to false or inaccurate information furnished by the holder or holders of the relevant reportable account or accounts, the prescribed income-tax authority under subsection (1) of section 285BA, shall direct that the reporting financial institution shall, in addition to the penalty under sub-section (1), if any, pay a sum of five thousand rupees for every inaccurate reportable account and the reporting financial institution shall be entitled to recover the sum so paid on behalf of such reportable account holder, or to retain out of any moneys that may be in its possession, or may come to it from every such reportable account holder, an amount equal to the sum so paid.”.
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