Wednesday, December 27, 2023

Penalties and Prosecutions under Income Tax Laws in India

Unraveling Amendments: A Focus on Finance Act 2023

In the realm of Indian income taxation, the Finance Act of 2023 has unfolded substantial changes, especially concerning penalties and prosecutions. This guide endeavors to dissect these modifications and shed light on their intricacies.

1. New Horizon: Penalty for Reporting Inaccurate Information (Section 271FAA)

Background Check:

Section 285BA mandates specified individuals to furnish a Statement of Financial Transaction (SFT), with reporting financial institutions, falling under clause (k) of Section 285BA(1), entrusted to register or maintain books of account containing records of specified financial transactions or reportable accounts.

Before the Facelift:

Section 271FAA, pre-amendment, already levied a penalty of Rs. 50,000 for SFT inaccuracies, citing reasons like non-compliance with due diligence or intentional misinformation.

Spotlight on Amendments:

The new sub-section (2) introduces a nuanced penalty provision, making reporting financial institutions accountable if SFT inaccuracies stem from false or inaccurate information supplied by the account holder. Empowering these institutions to recover penalties from account holders adds another layer to the amendment.


  • Exclusive Applicability: Limited to Reporting Financial Institutions under Section 285BA(1)(k).
  • Reportable Realm: Tailored to inaccuracies linked to reportable accounts.
  • Account Holder's Impact: Activated when the account holder provides false information.
  • Recovery Realm: Reporting institutions can recover penalties directly from account holders.
  • Per Account Precision: Levied separately for each inaccurate reportable account.

2. TDS Tangle: Penalties and Prosecutions (Section 271C and Section 276B)

Backdrop Brief:

The Finance Act of 2022 ushered in Sections 194R and 194S, and the subsequent Act of 2023 added Section 194BA, all intertwining with Tax Deducted at Source (TDS).

Amendment Amplification:

The amendments to Section 271C and Section 276B empower penalties and prosecutions, respectively, for defaults under Section 194R, 194S, and 194BA. Effective from 01-04-2023 for defaults under Section 194R and 194S, and from 01-07-2023 for defaults under Section 194BA.

Impact Insights:

  • Timely TDS Compliance: Ensuring prompt tax deduction and payment is pivotal to avoiding penalties and legal entanglements.
  • Calendar of Changes: Stay updated on effective dates for seamless alignment with compliance obligations.

3. Sunset in Sight: Prosecution of Liquidators (Section 276A)

Contextual Clarity:

Section 178 of the Income Tax Act delineates the duties and liabilities of liquidators during a company's liquidation.

Amendment Afterglow:

The Finance Act of 2023 introduces a sunset clause to Section 276A, proclaiming that no fresh prosecution proceedings shall commence under this provision post 01-04-2023.

Considerations to Contemplate:

  • Ongoing Cases Untouched: Existing prosecutions continue unaffected; the sunset clause applies only to fresh cases.
  • Legal Lighthouse Needed: Seek legal counsel to decipher the impact on ongoing and potential prosecutions.

In Conclusion: Charting the Altered Course

These amendments signify a strategic shift, aiming to simplify compliance, discourage inaccurate reporting, and ensure timely fulfillment of tax payment obligations. A meticulous grasp of these changes becomes imperative for individuals and entities alike, empowering them to navigate the evolved landscape of penalties and prosecutions under the Income Tax Act with finesse. Stay informed, stay compliant - the tax terrain demands it