Clause 90 of the Finance Bill, 2026 proposes an amendment to section 466 of the Income-tax Act, 2025, which deals with penalties for non-compliance with the information-collection powers of income-tax authorities under section 254.
The amendment seeks to increase the maximum penalty from ₹1,000 to ₹25,000, with the objective of strengthening enforcement and ensuring effective compliance during information-gathering proceedings.
The amendment will come into force from 1 April 2026 and apply from tax year 2026-27 onwards.
Statutory Position Before the Amendment
Section 254: Power to Collect Information
Section 254 of the Income-tax Act, 2025 empowers authorised income-tax authorities to collect information from premises where business or profession is carried on. The authority may direct:
the proprietor,
any employee, or
any other person present and attending to, assisting in, or carrying on the business or profession,
to furnish such information as authorised.
This provision is primarily used during survey-type proceedings and facilitates on-the-spot collection of factual and operational information.
Section 466: Existing Penalty Framework
Section 466 provides that where any person fails to comply with the directions issued under section 254, a penalty may be imposed. Under the existing provision:
the penalty may be levied by the Joint Commissioner, Deputy Director, Assistant Director, or the Assessing Officer; and
the maximum amount of penalty is ₹1,000.
Amendment Proposed by Clause 90 of the Finance Bill 2026
Increase in Maximum Penalty
Clause 90 proposes to amend section 466 to enhance the maximum penalty for failure to comply with section 254 from:
₹1,000 to ₹25,000
No change is proposed to:
the nature of default,
the class of persons covered, or
the authority competent to impose the penalty.
The amendment is limited strictly to enhancement of the monetary ceiling.
Legislative Rationale
the existing penalty of ₹1,000 is no longer adequate to ensure compliance; and
a higher penalty is required to create a meaningful deterrent and promote voluntary cooperation with tax authorities.
The amendment reflects a policy intent to align penalties with the current scale of business operations and enforcement needs.
Practical Implications
Increased Compliance Exposure
Failure, refusal, or omission to furnish information sought under section 254 may now attract a substantially higher penalty.
The provision applies not only to business owners but also to employees and other persons present at the premises.
Greater Importance of On-Site Compliance
Businesses should ensure that:
personnel interacting with tax authorities are adequately briefed,
information sought is furnished accurately and promptly, and
internal procedures exist to handle information requests during surveys.
Strengthened Enforcement Mechanism
The higher penalty enhances the enforcement effectiveness of section 254 by reducing instances of casual or deliberate non-compliance.
Effective Date
Applicable from: 1 April 2026
Relevant tax years: Tax year 2026-27 and onwards
Nature: Prospective (no retrospective application)
Conclusion
The amendment proposed under Clause 90 of the Finance Bill, 2026 significantly strengthens the penalty framework for non-compliance with information-collection powers under the Income-tax Act, 2025. By increasing the maximum penalty under section 466 to ₹25,000, the legislature seeks to ensure effective cooperation during information-gathering exercises and reinforce compliance from tax year 2026-27 onwards.
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