The present article provides a briefing on penalty provisions of section 271FAB of the Income Tax Act. It also explains the relevant provisions of section 9A of the Income Tax Act along with the amount of penalty payable under section 271FAB.

Circumstances when penalty provisions of section 271FAB get attracted

The penalty provisions of section 271FAB get applicable as explained hereunder –

  • As per provisions of section 9A (5) of the Income Tax Act, the ‘eligible investment fund’ is required to furnish a statement or information or document.
  • In case the ‘eligible investment fund’ fails to furnish such statement / information / documents within the prescribed time limit. Then for such failure, the income tax authority can direct the eligible investment fund to pay the penalty under section 271FAB.

Understanding the connecting relevant provisions of section 9A of the Income Tax Act

In order to understand the applicability of section 271FAB, it is important to understand the relevant provisions of section 9A, which are explained hereunder –

Section 9A provides that in case of an ‘Eligible Investment Fund’, the fund management activity being carried out by the ‘eligible fund manager’ (manager acting on behalf of the fund), shall not create a business connection in India of such funds.

Here, it is important to understand the two terms, namely, ‘Eligible Investment Fund’ and ‘Eligible Fund Manager’ which are explained hereunder.

Eligible Investment Fund means as under –

‘Eligible Investment Fund’ means a fund which is established or registered or incorporated outside India. The Eligible Investment Fund should satisfy the following conditions –

  • The fund should not be a person resident in India.
  • The fund should be a resident of the country/specified territory with which an agreement as referred to in section 90 (1) or section 90A (1) has been entered.
  • The total participation / investment in the fund, by a person resident in India, shouldn’t exceed 5% of the corpus of the fund.
  • The fund should be subject to applicable investor protection regulations in the country / specified territory where it is established / incorporated / registered.
  • The fund should have a minimum of 25 members, who are (directly / indirectly) not connected persons.
  • Any member of the fund (including connected persons) should not have (directly / indirectly) any participation interest exceeding 10%.
  • The total participation interest of 10 or less members (including connected persons) should be less than 50%.
  • The fund should not be investing more than 20% of its corpus in any entity.
  • The fund should not be making any investment in its associate entity.
  • The monthly average of the corpus of the fund should not be less than INR 100 Crore.

Eligible Fund Manager means the one who satisfies the following conditions –

  • The person should be registered as a ‘Fund Manager’ or an ‘Investment Advisor’.
  • The person should not be an employee of the ‘Eligible Investment Fund’ or a connected person of the fund.
  • The person should be acting as a Fund Manager in the ordinary course of his business.
  • The person (along with the connected person) should not be entitled (directly / indirectly) to more than 20% of the profits accruing / arising to the ‘Eligible Investment Fund’ from the transactions carried out by the fund through the Fund Manager.

Provisions of section 9A (5) mandate the ‘Eligible Investment Fund’ to furnish a statement (along with prescribed information / documents) within a period of 90 days from the end of the respective financial year.

In case the ‘Eligible Investment Funds’ fails to furnish such statement / information / documents then, they would be liable to pay the penalty under section 271FAB.

Amount of penalty payable under section 271FAB of the Income Tax Act

In case of default, the defaulter would be liable to pay the penalty amounting to INR 5 Lakhs under section 271FAB.

Read Also:-

S. No. Title
1 Section 272BB Penalty for failure to comply section 203A provisions
2 Section 272B Penalty for failure to comply with provisions of PAN
3 Section 272AA Penalty for failure in complying with provisions of section 133B
4 Section 272A Penalty for failure to answer questions or furnish information / returns/ statements or allow inspections etc
5 Section 271J Penalty on professionals for furnishing incorrect information in reports / certificates
6 Section 271I Penalty for failure in furnishing Form 15CA & Form 15CB
7 Section 271H Penalty for late filing/non-filing of TDS or TCS return
8 Penalty for failure in furnishing report or furnishing inaccurate report under section 286 – Section 271GB
9 Section 271GA Penalty for failure in furnishing the information / document in Form 49D as required under section 285A
10 Section 271G Penalty for failure to furnish information / document as per provisions of section 92D
11 Section 271FB Penalty for default in furnishing return of fringe benefits
12 Section 271FAB Penalty for failure to furnish statement / information / document by an eligible investment fund
13 Penalty for providing inaccurate statement of financial transaction or reportable account- Section 271FAA
14 Section 271FA Penalty for failure in furnishing statement of financial transactions or reportable account
15 Section 271E Penalty for contravening provisions of section 269T
16 Section 271DB | Penalty for contravening provisions of section 269SU
17 Section 271DA Penalty for contravening provisions of section 269ST
18 Section 271CA Penalty for failure to collect tax at source (TCS)
19 Section 271D Penalty for contravening provisions of section 269SS
20 Section 271C Penalty for failure / non-deduction / non-payment of TDS
21 TDS Rate Chart for AY 2020-21 and AY 2021-22
22 Section 271BA Penalty for failure to furnish section 92E report
23 Section 271B Penalty for failure to get accounts audited
24 Section 271AAC Penalty in respect of certain specified income
25 Section 271AA Penalty for failure to maintain Transfer Pricing documents
26 Section 271A Penalty for failure to keep / maintain or retain books of accounts, documents
27 Section 270A(1) Penalty for under-reporting & misreporting of income
28 Section 269SU Acceptance of payment through electronic modes
29 Section 234F Late fees for default in filing of income tax return
30 Section 234E Late Fee for default in filing of TDS / TCS returns
31 Section 158BFA(2) – Penalty on undisclosed income for block period
32 Section 140A(3) Penalty for non-payment of self-assessment tax

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