Section 460 of the Income-tax Act, 2025 — Penalty for Failure to Submit Liaison Office Statement (Section 505)

In plain language

What Section 460 is about

Section 460 of the Income-tax Act, 2025 imposes a penalty on a non-resident who fails to submit the statement required under Section 505 of the same Act. Section 505 is the provision that requires a non-resident operating a liaison office in India (set up under the Foreign Exchange Management Act, 1999 / RBI guidelines) to file an annual statement with the Assessing Officer within 60 days from the end of the tax year. If that statement is not filed on time, Section 460 is the enforcement stick.

In plain words: a foreign company's liaison office in India generally does not earn taxable income (it only does liaison, coordination and communication work). But the tax department still wants visibility into what these offices do. So the law makes them file an information statement. Section 460 penalises non-filing or late filing of that statement.

Who does it apply to

• Every non-resident (typically a foreign company) that has established a liaison office in India as permitted by the Reserve Bank of India under FEMA, 1999.
• It does not apply to ordinary resident taxpayers, salaried individuals, or Indian businesses — this is a narrow, specialised compliance provision.
• It is distinct from the penalties for late TDS/TCS returns or late income-tax returns; those live in other sections of Chapter XXI (the penalties chapter, roughly Sections 439–472).

How much is the penalty

• ₹1,000 for every day during which the failure continues, if the delay does not exceed three months.
• ₹1,00,000 (one lakh rupees) in any other case — that is, where the delay stretches beyond three months.

So the design is graded: a short slip is charged on a per-day basis (which for a modest delay stays well below one lakh), but a prolonged failure is hit with a flat one-lakh penalty. The Assessing Officer is the authority who levies it.

Key conditions and how it works in practice

• The trigger is failure to comply with Section 505. Section 505 sets the filing obligation (a statement in the prescribed form, with prescribed particulars, within 60 days of the tax-year end); Section 460 supplies the consequence for breaching it.
• Reasonable cause is generally a defence. Consistent with the general penalty framework of the Act (the general "reasonable cause" relief provision continues under the 2025 Act, mirroring the old Section 273B of the 1961 Act), a penalty for such a procedural default is normally not imposed if the person proves there was a reasonable cause for the failure. The taxpayer must be given an opportunity of being heard.
• It is a civil penalty, not tax. It does not depend on any income being taxable — a liaison office with zero Indian income still has to file, and can still be penalised for not filing.

Link to the old law (Income-tax Act, 1961)

This is not a brand-new idea. Under the 1961 Act, the same filing duty sat in Section 285 (annual statement by a non-resident having a liaison office, filed in Form 49C under Rule 114DA), and the penalty for defaults of this kind was administered through the general default-penalty machinery of Section 272A. The 2025 Act simply re-organises this: the obligation is now in Section 505 and a dedicated penalty section (Section 460) is carved out specifically for it, with clearer per-day and flat-amount limits.

Practical implications for a foreign group with a liaison office

• Diarise the 60-day deadline after your tax year ends and treat the Section 505 statement as a hard compliance item, even in a "dormant" liaison year.
• Because the per-day charge caps out and then converts to a flat ₹1,00,000 after three months, filing even a late statement quickly materially limits exposure.
• Keep documentation (board approvals, RBI correspondence, professional engagement) that can support a reasonable-cause plea if a genuine delay occurs.