Section 454 of the Income-tax Act, 2025 — Penalty for Failure to Furnish Statement of Financial Transaction (SFT) or Reportable Account

In plain language

What Section 454 actually deals with

Important clarification first: Section 454 of the Income-tax Act, 2025 does not deal with the penalty for failure to get accounts audited or to furnish the tax audit report. That subject is covered by Section 446 (the successor to the old Section 271B). Section 454 is the penalty for failure to furnish a Statement of Financial Transaction (SFT) or reportable account. It is the direct successor to Section 271FA of the Income-tax Act, 1961, and it works hand-in-hand with the reporting obligation contained in Section 508 of the 2025 Act (the successor to Section 285BA of the 1961 Act). If you landed here looking for the audit-report penalty, please read Section 446 instead.

The reporting duty behind the penalty

Certain "specified persons" — not ordinary individual taxpayers — are legally required under Section 508(1) to report high-value financial transactions to the Income-tax Department each year in Form 165 (the 2025 Act's version of the old Form 61A), generally by 31 May following the financial year. These reporters include:

• Banks and co-operative banks (large cash deposits/withdrawals, term deposits, credit-card payments)
• Companies issuing shares, debentures or buying back shares
• Mutual funds, NBFCs, and bond/debenture issuers
• Sub-registrars registering immovable property above the threshold
• Post offices, forex dealers and other prescribed institutions

How the penalty is triggered

Section 454 bites when a specified person fails to furnish the SFT within the prescribed time. The law provides a two-stage escalation:

• Stage 1 — original default: If the statement is not filed by the due date, a charge accrues for every day the failure continues (traditionally ₹500 per day under the 271FA-style regime; see the Finance Act 2026 note below).
• Stage 2 — after a notice: The tax authority can issue a notice under Section 508(7) demanding the statement within a specified period. If the person still does not comply, the charge rises to ₹1,000 for every day the failure continues, counted from the day after the notice period ends.

Finance Act, 2026 rationalisation (effective 1 April 2026)

As part of a drive to cut litigation over purely technical delays, the Finance Act, 2026 has begun converting the first-stage default into a "fee" rather than a "penalty." Reported treatment (verify against the final notified text before relying on it) is:

• The pre-notice default is charged as a fee, with sources indicating a daily rate in the ₹200 range and an overall cap of ₹1,00,000.
• The post-notice penalty of ₹1,000 per day is retained, subject to a maximum of ₹1,00,000.

The practical effect: a small delay becomes an automatic, predictable fee, but ignoring a formal notice keeps a real penalty with "enforcement teeth."

Who should worry about Section 454 (and who should not)

• You should worry if you run or work in a bank, company, mutual fund, registrar office, NBFC or similar reporting entity responsible for filing Form 165.
• You should not worry if you are a salaried employee or an ordinary individual — you are the subject of the transactions being reported, not the reporter. Your equivalent duty (responding to a departmental notice seeking information/correction of the SFT) sits in related provisions, and inaccurate reporting has its own separate penalty.

Interaction with related sections

• Section 508 creates the reporting duty and the notice power that Section 454 enforces.
• Section 455 (successor to Section 271FAA) penalises furnishing an inaccurate SFT — distinct from not furnishing one at all.
• Section 446 is the separate penalty for tax-audit / audit-report defaults (old 271B) — often confused with 454.

Practical implications

Because the charge runs per day, delay compounds quickly. A reporting entity that misses 31 May and drifts for two months faces a fast-mounting liability. The safest course is to file Form 165 on time, and if a Section 508(7) notice arrives, comply before the deadline in the notice to avoid the higher ₹1,000/day post-notice rate. Maintaining a compliance calendar and reconciling reportable transactions well before 31 May is the standard defence.