Chapter XXI - Penalties
Section 454
Section 454: penalty for failure to furnish statement of financial transaction or reportable account after a notice
Section 454 applies once a person required to file a statement of financial transaction or reportable account under section 508(1) has already been sent a notice under section 508(7) asking them to comply, and still fails to furnish the statement within the time given in that notice.
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Need advice on Section 454?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Where any person, who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement or reportable account within the period specified in the notice issued under section 508(7), the income-tax authority prescribed under section 508(1) may impose on him, a penalty of ₹1000 for every day for which such failure continues, beginning from the day immediately after the period specified in such notice for furnishing such statement or reportable account expires and such penalty shall not exceed ₹100000.
Introduction
The Finance Act, 2026 substituted section 454. The current penalty is tied to failure to file a section 508(1) statement of financial transaction or reportable account within the time specified in a notice under section 508(7), rather than merely missing the original prescribed filing date.
Key takeaways
Notice-stage trigger
The section applies after failure to meet the period stated in a section 508(7) notice.
Daily rate and ceiling
The prescribed authority may impose ₹1,000 for each day after the notice period expires, up to ₹1,00,000.
2026 substituted text
Older two-stage penalty wording is reproduced only in the amendment footnote; use the amended operative text.
What Section 454 currently says
"Where any person, who is required to furnish a statement of financial transaction or reportable account under section 508(1), fails to furnish such statement or reportable account within the period specified in the notice issued under section 508(7), the income-tax authority prescribed under section 508(1) may impose on him, a penalty of ₹1,000 for every day for which such failure continues, beginning from the day immediately after the period specified in such notice for furnishing such statement or reportable account expires and such penalty shall not exceed ₹1,00,000."
How the penalty works
| Parameter | Detail |
|---|---|
| Trigger | Failure to furnish the statement/reportable account within the period specified in a notice already issued under section 508(7) |
| Rate | ₹1,000 for every day the failure continues |
| Start of the daily count | The day immediately after the notice's specified period for furnishing the statement expires |
| Maximum penalty | ₹1,00,000 |
Applying Section 454 in practice
Notice-specific clock. The potential ₹1,000 daily penalty applies after a section 508(7) notice and starts the day after the period specified in that notice expires, capped at ₹1 lakh. It is therefore essential to inspect the notice, not merely the original annual reporting deadline.
Step-by-step flow for applying Section 454
- 1
Is the person required to furnish a statement of financial transaction or reportable account under section 508(1)?
- No: Section 454 does not apply.
- Yes: Go to the next step.
- 2
Was a notice issued under section 508(7) requiring the statement within a specified period?
Section 508(7) allows a period not exceeding thirty days from service of the notice.
- No: Section 454 does not apply; it is triggered only after such a notice.
- Yes: Go to the next step.
- 3
Was the statement furnished within the period specified in the notice?
- Yes: No penalty under Section 454.
- No: Go to the next step.
- 4
Count the days of continuing failure
Counting begins from the day immediately after the period specified in the notice expires.
- 5
Apply the rate and the cap
The prescribed income-tax authority may impose ₹1,000 for every day the failure continues. The total cannot exceed ₹1,00,000.
Practical checklist
Do
- Keep the notice, proof of service, stated response period and actual filing acknowledgement.
- Count any delay from the day immediately after the notice period expired, subject to the statutory cap.
- reporting-person duty, service and contents of notice, stated period, actual filing date and maximum.
Avoid
- Do not calculate the current section 454 penalty from the original prescribed return date without a section 508(7) notice.
Illustrative example
Worked example: two delays after a notice
Hypothetical facts (illustration only, not a real taxpayer): A company required to furnish a statement of financial transaction under section 508(1) did not file it in time and received a notice under section 508(7) giving it 30 days. Two alternative facts are tested: the failure continues for 25 days after that period ends, or for 130 days. The day counts are assumed for illustration.
Trigger
The notice period expired without the statement being furnished, so the Section 454 penalty runs from the next day.
25-day delay
25 × ₹1,000 = ₹25,000. This is below the ₹1,00,000 cap.
130-day delay
130 × ₹1,000 = ₹1,30,000, but the penalty cannot exceed ₹1,00,000, so it is limited to ₹1,00,000.
Discretion
The prescribed income-tax authority "may" impose the penalty.
Outcome
- Possible penalty: ₹25,000 for a 25-day delay; ₹1,00,000 (the cap) for a 130-day delay.
- Days before the notice period expires are not counted under Section 454.
Frequently asked questions
When does the Section 454 penalty apply?
Only after a person required to furnish a statement of financial transaction or reportable account under section 508(1) has been issued a notice under section 508(7), and still fails to furnish it within the time the notice specifies.
Is there a cap on this penalty?
Yes - the daily penalty of ₹1,000 is capped at a maximum of ₹1,00,000.
Can the clock be computed from the financial year-end alone?
No; this section expressly uses the post-notice period. Section 470 reasonable cause is relevant.
Need help applying this provision to your situation?
Get help responding to a statement-of-financial-transaction noticeLast updated 10 October 2026