Clause 87 of the Finance Bill, 2026 proposes to substitute section 446 of the Income-tax Act, 2025, introducing a specific penalty provision linked to reporting of crypto-asset transactions.
The substituted section 446 no longer deals with failure to get accounts audited. Instead, it provides a dedicated penalty regime to enforce compliance with section 509, which mandates furnishing of statements relating to transactions in crypto-assets by prescribed reporting entities.
The amendment takes effect from 1 April 2026, i.e., tax year 2026-27 onwards.
Background: Crypto-Asset Reporting Under Section 509
Section 509 of the Income-tax Act, 2025 imposes obligations on prescribed reporting entities to:
- Furnish a statement of transactions in crypto-assets
- In the prescribed form, manner, and time
- Comply with due diligence requirements, and
- Correct any inaccurate information when intimated
While section 509 created a reporting framework, the Act did not previously contain a dedicated penalty provision to address non-furnishing or persistent inaccuracies in such statements.
What Does Clause 87 Change?
Clause 87 substitutes section 446 in its entirety and introduces a two-tier penalty structure specifically for failures relating to crypto-asset transaction reporting under section 509. The new section 446 addresses:
- Failure to furnish the statement, and
- Furnishing inaccurate information and failure to correct it or comply with due diligence.
Penalty for Failure to Furnish Statement of Crypto-Asset Transactions
Statutory Provision
Under section 446(1) (as substituted):
- Where a person required to furnish a statement under section 509(1)
- Fails to furnish such statement within the time prescribed by rules,
the income-tax authority (as prescribed) may impose:
A penalty of ₹200 for every day during which the failure continues.
Implications
- Introduces a continuing default-based penalty, encouraging timely filing
- Penalty accrues day-by-day until compliance is achieved
- Primarily impacts crypto exchanges, intermediaries, and other reporting entities
Penalty for Furnishing Inaccurate Information
Statutory Provision
Under section 446(2) (as substituted), a penalty of ₹50,000 may be imposed where a person required to furnish a statement under section 509(1):
- Furnishes inaccurate information, and
- Either:
- Fails to correct such inaccuracy in accordance with section 509(4), or
- Fails to comply with due diligence requirements under section 509(5).
Implications
- Focuses on data accuracy and quality, not merely submission
- Penalises persistent non-compliance after opportunity to rectify
- Encourages robust internal controls and verification mechanisms
Nature and Scope of the Amendment
What the Amendment Does
- Introduces a specific, self-contained penalty regime for crypto-asset reporting
- Strengthens enforceability of section 509
- Creates a deterrence against non-filing and careless reporting
What the Amendment Does Not Do
- ❌ Does not impose penalties on individual crypto investors merely for trading
- ❌ Does not criminalise crypto-asset transactions
- ❌ Does not introduce new reporting obligations, it enforces existing ones
The amendment is compliance-oriented, not punitive beyond what is proportionate.
Who Is Primarily Affected?
- Crypto exchanges and trading platforms
- Custodial wallet providers
- Other prescribed reporting entities notified under section 509
Individual taxpayers are affected indirectly, through improved accuracy and completeness of third-party reporting.
Effective Date
✔ Applicable from 1 April 2026. Applies to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 87 of the Finance Bill, 2026 introduces a targeted and structured penalty framework to ensure compliance with crypto-asset transaction reporting requirements under section 509 of the Income-tax Act, 2025. By substituting section 446, the law now clearly prescribes consequences for delayed filing and persistent inaccuracies, strengthening the integrity of the crypto-asset reporting system.
The amendment represents a move towards disciplined information reporting in the digital asset ecosystem, without altering the substantive taxation of crypto-assets.
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