Section 456 of the Income-tax Act, 2025 — Penalty for Failure by an Eligible Investment Fund to Furnish the Required Statement

In plain language

What Section 456 is about

Section 456 of the Income-tax Act, 2025 imposes a fixed monetary penalty on an eligible investment fund that fails to furnish, within the prescribed time, the statement, information or document it is legally required to file in connection with the special "fund manager regime". This provision is the 2025 Act's re-enactment of the old Section 271FAB of the Income-tax Act, 1961, and the substance is carried over almost unchanged.

The fund manager regime itself now sits in Section 212 of the 2025 Act (the successor to the well-known Section 9A of the 1961 Act). That regime is a "safe harbour": it says that where an eligible offshore fund is managed from India by an eligible fund manager, the mere presence of that manager does not create a taxable "business connection" or make the fund a tax resident of India. In exchange for this valuable protection, the fund must comply with reporting obligations — chiefly, filing an annual statement (historically in Form 3CEK) with the Assessing Officer confirming that the qualifying conditions are met. Section 456 is the enforcement teeth behind that filing duty.

Who it applies to

• Eligible investment funds — typically offshore/foreign funds that engage an India-based fund manager and rely on the Section 212 (old 9A) safe harbour to avoid an Indian taxable presence.
• It does not apply to ordinary domestic mutual funds, retail investors, salaried taxpayers or businesses. This is a niche cross-border provision aimed at the asset-management industry, especially funds operating through or relocating to an International Financial Services Centre (IFSC) such as GIFT City.

The default that triggers the penalty

The regime requires the fund to file a statement (with prescribed information/documents) within 90 days from the end of the financial year, demonstrating fulfilment of the conditions of the regime. A penalty under Section 456 becomes leviable when the fund:

• fails to furnish the required statement at all; or
• fails to furnish the required information or document along with it; or
• files it beyond the prescribed time limit.

Amount of penalty

The penalty is a flat ₹5,00,000 (five lakh rupees). Unlike some penalties, it is not a per-day or percentage-of-value amount — it is a single fixed sum for the failure. This mirrors the ₹5,00,000 figure that applied under Section 271FAB of the 1961 Act.

How it interacts with related sections

• Section 212 (old Section 9A) — creates the obligation. Section 456 only bites because Section 212 requires the statement to be filed.
• Reasonable-cause defence — the 2025 Act continues the old Section 273B relief (now housed in the general "no penalty for reasonable cause" provision of the 2025 Act, Section 472). If the fund proves there was a genuine, reasonable cause for the failure, the penalty need not be imposed.
• Neighbouring penalty sections — Section 456 sits inside the penalties chapter alongside sections dealing with financial-transaction statements (SFT), inaccurate reporting and transfer-pricing documentation, but each targets a different default. Section 456 is specific to the eligible-investment-fund statement.

Practical implications

• Compliance calendar matters. The 90-day window is short. Fund administrators should diarise the deadline immediately after the financial year closes.
• Fixed cost of non-compliance. Because ₹5,00,000 is flat, even a short delay attracts the full amount — but it does not keep growing, unlike daily penalties.
• Documentation discipline. The statement certifies fulfilment of the regime's conditions; incomplete or missing supporting documents can themselves be a failure.
• Defence is available but must be proved. The onus is on the fund to establish reasonable cause; a bare assertion is unlikely to succeed.
• Verify current forms and thresholds. Form numbers and procedural detail are prescribed by rules that can change; confirm the applicable form and due date for the relevant tax year before filing.