Section 271FAA of the Income Tax Act, 1961, addresses penalties for furnishing inaccurate information in statements relating to specified financial transactions (SFTs). This provision ensures that reporting entities provide accurate and complete information to tax authorities, enabling effective monitoring and compliance. Below is a comprehensive guide to the penalties and provisions under Section 271FAA.
1. Applicability of Section 271FAA
Section 271FAA applies to reporting entities required to furnish statements of financial transactions (SFTs) under Section 285BA of the Income Tax Act. These entities include:
- Banks and financial institutions.
- Registrars and sub-registrars.
- Companies issuing shares or bonds.
- Mutual funds and other specified entities.
The provision is triggered when inaccurate information is furnished in SFTs.
2. Penalties Under Section 271FAA
a) Amount of Penalty
- Fixed Penalty: ₹50,000 per inaccurate statement.
b) Applicability
- Penalty is levied if the reporting entity:
- Provides inaccurate information in the statement.
- Fails to rectify errors despite being aware of the inaccuracies.
- Fails to verify the correctness of the information before submission.
| Nature of Default | Penalty (₹) |
|---|---|
| Furnishing inaccurate SFTs | ₹50,000 per statement |
| Non-verification of information in SFTs | ₹50,000 per statement |
3. Exceptions to Penalty Under Section 271FAA
a) Reasonable Cause Defense
- Penalty shall not be imposed if the reporting entity demonstrates reasonable cause for furnishing inaccurate information. Examples include:
- Genuine clerical errors.
- Technical glitches in reporting systems.
b) Timely Rectification
- Penalty may not be levied if the entity rectifies the inaccuracies promptly upon detection or notification.
4. Procedure for Imposing Penalty
- Detection of Default:
- The Assessing Officer (AO) identifies inaccuracies during audits or assessments of SFTs.
- Issuance of Notice:
- A show-cause notice is issued to the reporting entity, allowing it to explain the reasons for inaccuracies.
- Evaluation by Tax Authority:
- The AO evaluates the explanation and supporting evidence provided by the entity.
- Imposition of Penalty:
- If the explanation is unsatisfactory, a penalty order is issued under Section 271FAA.
5. Importance of Section 271FAA
- Promotes Accuracy: Ensures that reporting entities furnish correct and verified information in SFTs.
- Enhances Monitoring: Assists tax authorities in monitoring high-value transactions and identifying potential tax evasion.
- Deters Negligence: Discourages carelessness and negligence in reporting financial transactions.
6. Key Takeaways for Reporting Entities
- Verify the accuracy of all information before submitting SFTs.
- Implement robust internal systems to ensure data integrity.
- Respond promptly to notices or notifications about inaccuracies.
- Rectify errors proactively to mitigate the risk of penalties.
Conclusion
Section 271FAA underscores the importance of accuracy and diligence in reporting specified financial transactions. Reporting entities must prioritize compliance to avoid penalties and support effective tax administration. Proactive measures, such as timely rectification and robust data verification systems, can help mitigate risks under this provision.
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Additional Resources
Learn more about Tax Provisions on the official Income Tax India website.
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