Indian Income-tax Law / Penalties / Financial Reporting
Section 271FAA: Penalty for Inaccurate Financial Transaction Statements and Reportable Accounts
Section 271FAA of the Income-tax Act, 1961 addresses inaccurate information in statements of financial transactions (SFT) or reportable accounts, failures to correct reporting errors, and prescribed due diligence failures. Its updated provisions must be read with section 285BA and, for the new statutory regime beginning 1 April 2026, section 455 of the Income-tax Act, 2025.
1. Meaning and scope of Section 271FAA
A statement of financial transaction is information required from specified reporting persons about prescribed transactions. A reportable account is an account subject to applicable tax-information reporting requirements, including prescribed due diligence. Section 285BA of the 1961 Act governs who must report, the reporting requirements, correction of inaccuracies and due diligence; relevant rules include Rules 114E, 114F, 114G and 114H of the Income-tax Rules, 1962, as applicable.
Section 271FAA is not a general penalty for every clerical error in any tax return. It addresses the statutory reporting persons and circumstances specified by section 285BA. It is distinct from section 271FA, which addresses failure to furnish a required statement.
2. Updated statutory rule under Section 271FAA(1)
Under the provision substituted with effect from 1 October 2024, a person required to furnish a statement under section 285BA(1) may be directed by the prescribed income-tax authority to pay Rs 50,000 if the person:
- Provides inaccurate information in the statement or fails to furnish correct information within the period specified in section 285BA(6); or
- Fails to comply with the due diligence requirement prescribed under section 285BA(7).
These are alternative statutory grounds. The authority must apply the relevant legal requirements and consider the circumstances and procedure of the particular case.
3. Additional penalty for reporting financial institutions: Section 271FAA(2)
Where a reporting financial institution referred to in section 285BA(1)(k) provides inaccurate information because the holder of a reportable account furnished false or inaccurate information, the prescribed authority is required, subject to the statutory conditions, to impose Rs 5,000 for every inaccurate reportable account, in addition to any penalty under subsection (1).
The provision allows the reporting financial institution to recover the amount paid on behalf of the relevant account holder or retain an equivalent amount from money in its possession or subsequently received from that holder, as permitted by the statute. This additional penalty was inserted with effect from 1 April 2023.
4. Reporting inaccuracies and correcting a statement
Under section 285BA(6), where a reporting person becomes aware of an inaccuracy after furnishing a statement, the person must inform the prescribed authority and furnish correct information within the statutory period (generally 10 days under the 1961 Act). Reporting entities should maintain documented checks, account-holder declarations, audit trails and evidence of corrections.
Separate requirements may apply to statements treated as defective under section 285BA(4), including a correction opportunity following official intimation. A defective filing, an inaccurate statement and a statement not filed at all should not be conflated.
5. Illustrative penalty calculations
| Situation | Illustrative statutory exposure |
|---|---|
| Specified inaccurate statement or due diligence failure under subsection (1) | Rs 50,000 |
| Three inaccurate reportable accounts attributable to false account-holder information, satisfying subsection (2) | 3 × Rs 5,000 = Rs 15,000 |
| Both subsection (1) and subsection (2) apply in that example | Rs 50,000 + Rs 15,000 = Rs 65,000 |
Examples are explanatory only. Actual liability depends on the legal conditions, evidence, applicable year and decision of the competent authority.
6. Legislative history and the older wording
Section 271FAA was introduced by the Finance (No. 2) Act, 2014 with effect from 1 April 2015. The originally published text, reproduced in the previous version of this webpage, applied where an inaccurate statement resulted from failure to comply with due diligence or deliberate conduct; where a person knew of the inaccuracy but failed to inform the authority; or where an inaccuracy discovered later was not corrected within the specified time. The penalty was Rs 50,000.
Subsequent amendments broadened the class of reporting persons, added the per-account penalty in 2023, and substituted subsection (1) with effect from 1 October 2024. The earlier wording remains relevant to historical periods but should not be presented as the latest text.
7. Income-tax Act, 2025: Section 455 from 1 April 2026
Section 455 of the Income-tax Act, 2025 corresponds to the inaccurate reporting penalty. Under section 455(1), the prescribed authority may direct a penalty of Rs 50,000 where a person required to furnish a statement under section 508(1) provides inaccurate information, fails to correct it within the period under section 508(8), or fails to comply with due diligence under section 508(9).
Section 455(2) provides an additional Rs 5,000 per inaccurate reportable account where a reporting financial institution furnishes inaccurate information due to false or inaccurate information from account holders. Section 455(3) permits statutory recovery or retention from those account holders. Earlier-period matters must be considered under the applicable transitional and savings rules; the two Acts should not be indiscriminately combined.
8. Section 271FA versus Section 271FAA
| Provision | Nature of default | Penalty framework |
|---|---|---|
| Section 271FA (1961 Act) | Failure to furnish a required SFT or reportable account statement | Rs 500 per day, rising to Rs 1,000 per day after failure to comply with a statutory notice |
| Section 271FAA (1961 Act) | Inaccurate reporting, failure to correct, or due diligence failure | Rs 50,000; possible additional Rs 5,000 per inaccurate reportable account |
| Section 455 (2025 Act) | Corresponding inaccurate reporting defaults | Rs 50,000; additional Rs 5,000 per qualifying inaccurate reportable account |
9. Practical compliance checklist
- Identify whether the entity is a reporting person and whether the transaction or account is reportable.
- Check the applicable statement format, due date, and rules for the relevant reporting year.
- Perform and record prescribed due diligence before filing.
- Reconcile transaction data, customer declarations, tax identification numbers and account classifications.
- Promptly investigate discovered inaccuracies and file corrections within the statutory period.
- Preserve supporting records, notices, acknowledgments and correspondence with the tax authority.
10. Official legislation and guidance
- Income Tax Department: Section 271FAA and amendment notes
- Income-tax Act, 1961, as amended by Finance Act, 2025 (official PDF)
- Income-tax Act, 2025, as amended by Finance Act, 2026 (official PDF; section 455)
- Income Tax Department: Statement of Financial Transaction filing guidance
Frequently asked questions
What is the penalty under Section 271FAA?
Section 271FAA(1) provides a penalty of Rs 50,000 for specified inaccurate reporting, failure to correct information within the statutory period, or failure to meet due diligence requirements.
Is there an additional penalty for a reporting financial institution?
Yes. Section 271FAA(2) provides Rs 5,000 for every inaccurate reportable account when the inaccuracy results from false or inaccurate information provided by the account holder, subject to the statutory conditions.
What provision applies from 1 April 2026?
Section 455 of the Income-tax Act, 2025 addresses inaccurate statements of financial transactions or reportable accounts, with corresponding penalties of Rs 50,000 and Rs 5,000 per inaccurate reportable account.
Is Section 271FAA the same as Section 271FA?
No. Section 271FA concerns failure to furnish a required statement; Section 271FAA concerns inaccurate statements, correction failures and due diligence defaults.
Legal information: This article explains the statutory framework as at 28 October 2026. Application to a particular default depends on the governing law, dates, evidence and official proceedings; seek professional advice for individual matters.