Non-compliance with income tax authorities during information collection can now cost significantly more. The Finance Bill 2026 has proposed a steep increase in penalties to ensure stricter compliance and better tax administration.

What is the Amendment About?

The Finance Bill, 2026 proposes an important amendment to the Income-tax framework by increasing the maximum penalty for failure to provide information during tax authority visits.

• Earlier Maximum Penalty: ₹1,000
• Proposed Maximum Penalty: ₹25,000
• Effective Date: 1 April 2026
• Applicable From: Tax Year 2026–27 onwards

This change aims to improve compliance and ensure that taxpayers cooperate when authorities request information.

Understanding Section 254 – Power to Collect Information

Section 254 of the Income-tax Act, 2025 gives income-tax authorities the power to:

• Visit business or professional premises
• Ask for relevant financial or operational information
• Seek details from:
  • Proprietors
  • Employees
  • Any person present at the premises

Example:
If a tax officer visits a shop and asks for sales records or stock details, the shop owner or staff must provide the information as requested.

Section 466 – Penalty for Non-Compliance

Section 466 deals with penalties when a person:

• Fails to provide required information
• Refuses to cooperate during such visits

Earlier Situation:

• Maximum penalty capped at ₹1,000
• Considered too low to act as a deterrent

After Amendment:

• Penalty increased up to ₹25,000
• Applicable per instance of non-compliance
• Can be imposed by:
  • Assessing Officer
  • Joint Commissioner
  • Deputy Director
  • Assistant Director

Why Was This Amendment Necessary?

The government identified key issues with the existing penalty structure:

• Low penalty encouraged non-cooperation
• Lack of deterrence led to delays in investigations
• Ineffective enforcement of information-gathering powers

The revised penalty aims to:

• Encourage voluntary compliance
• Improve transparency
• Strengthen tax administration
• Ensure faster and smoother assessments

Practical Impact on Businesses & Professionals

This amendment will directly affect:

• Small traders
• Shop owners
• Professionals (CA, doctors, consultants)
• MSMEs and startups

Real-Life Scenario:

A GST-registered trader refuses to share purchase records during a tax visit. Earlier, the risk was only ₹1,000. Now, the same non-compliance could cost up to ₹25,000.

Practical Tip / CA Insight

• Always maintain updated books of accounts at your business premises
• Train staff to handle tax authority visits professionally
• Never ignore or delay information requests
• Keep digital backups ready for quick sharing

CA Insight:
Even unintentional non-compliance (like lack of awareness by staff) can attract penalties. It is advisable to create a standard response protocol for such situations.

FAQ SECTION

1. When will the new penalty come into effect?

The increased penalty will apply from 1 April 2026 for the tax year 2026–27 onwards.

2. Who can impose this penalty?

The penalty can be imposed by authorized officers such as the Assessing Officer, Joint Commissioner, or other designated officials.

3. Is the ₹25,000 penalty fixed or maximum?

It is the maximum limit. The actual penalty may vary depending on the severity of non-compliance.

4. Does this apply to individuals as well?

Yes, if individuals are present at business premises and fail to provide required information, they can also be penalized.

5. Can penalty be avoided?

Yes, by cooperating fully and providing accurate information when requested by tax authorities.

CONCLUSION

The increase in penalty from ₹1,000 to ₹25,000 reflects the government’s intent to enforce stricter compliance and accountability. Businesses and professionals must take this change seriously and ensure proper systems are in place to respond to tax authority requests promptly.

For expert guidance on this topic, contact your tax professional today.