Chapter XXI - Penalties
Section 455
Section 455: penalty for furnishing inaccurate statement of financial transaction or reportable account
Section 455 deals with statements of financial transaction or reportable accounts under section 508 that are actually filed, but contain inaccurate information or fall short on due diligence - as distinct from section 454, which deals with not filing at all.
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Need advice on Section 455?
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
(1) The prescribed income-tax authority referred to in section 508 may direct that a person required to furnish a statement under sub-section (1) of the said section shall pay penalty of ₹50000, if such person—
(a) provides inaccurate information in the statement or fails to furnish correct information within the period specified under section 508(8); or
(b) fails to comply with the due diligence requirement under section 508(9).
(2) The prescribed income-tax authority referred to in section 508, shall direct that reporting financial institution referred to in section 508(1)(k) shall, in addition to the penalty under sub-section (1) of this section, if any, pay a sum of ₹5000 for every inaccurate reportable account, if—
(a) the said institution provides inaccurate information in the statement required to be furnished under section 508(1); and
(b) the inaccuracy in the said statement is due to false or inaccurate information furnished by the holder or holders of the relevant reportable account or accounts.
(3) The reporting financial institution as referred to in sub-section (2) shall be entitled to—
(a) recover the amount paid under sub-section (2) on behalf of the reportable account holder; or
(b) retain an amount equal to the sum so paid out of any moneys that may be in its possession, or may come to it from every such account holder.
Introduction
Section 455 addresses inaccurate section 508 reporting or failed due diligence. It also has an additional per-account rule for a reporting financial institution where inaccurate account-holder information caused the inaccurate report.
Key takeaways
General penalty
The prescribed authority may direct a ₹50,000 penalty for the specified inaccurate reporting, non-correction or due-diligence failure.
Financial-institution amount
An additional ₹5,000 for each inaccurate reportable account applies only on the subsection (2) conditions.
Recovery from holder
The reporting financial institution may recover or retain the subsection (2) amount from the relevant account holder.
Penalty on the person filing the statement
Sub-section (1): the prescribed income-tax authority under section 508 may direct a person required to furnish a statement under section 508(1) to pay a penalty of ₹50,000, if that person either (a) provides inaccurate information in the statement or fails to furnish correct information within the period specified under section 508(8), or (b) fails to comply with the due diligence requirement under section 508(9).
Additional penalty on a reporting financial institution
Sub-section (2): the prescribed authority may additionally direct a reporting financial institution referred to in section 508(1)(k) to pay ₹5,000 for every inaccurate reportable account, if the institution provides inaccurate information in its statement under section 508(1) and the inaccuracy is due to false or inaccurate information supplied by the holder(s) of that reportable account.
This ₹5,000-per-account penalty is in addition to any penalty the institution may separately owe under sub-section (1).
Recovering the penalty from the account holder
Sub-section (3): where the reporting financial institution pays the sub-section (2) penalty because the account holder supplied false or inaccurate information, the institution is entitled to either recover that amount from the account holder, or retain an equivalent amount out of any money in its possession, or coming to it, from that account holder.
Step-by-step flow for applying Section 455
- 1
Is the person required to furnish a statement under section 508(1)?
- No: Section 455 does not apply.
- Yes: Go to the next step.
- 2
Did it provide inaccurate information or fail to furnish correct information within the period in section 508(8), or fail the due diligence requirement under section 508(9)?
Section 508(8) allows ten days from becoming aware of the inaccuracy.
- Yes: The prescribed income-tax authority may direct a penalty of ₹50,000 under Section 455(1). Go to the next step.
- No: No penalty under Section 455(1). Go to the next step.
- 3
Is the person a reporting financial institution referred to in section 508(1)(k)?
- No: Section 455(2) does not apply.
- Yes: Go to the next step.
- 4
Did it provide inaccurate information because of false or inaccurate information furnished by the account holder?
- No: Section 455(2) does not apply.
- Yes: The authority shall direct a further ₹5,000 for every inaccurate reportable account, in addition to any penalty under Section 455(1).
- 5
Recover the amount from the account holder
Under Section 455(3), the institution may recover the amount paid under Section 455(2) on behalf of the holder, or retain an equal sum out of moneys it holds or receives for that holder.
Practical checklist
Do
- Separate a section 508(8) correction failure from a section 508(9) due-diligence failure.
- For the per-account amount, identify the false or inaccurate account-holder information.
Avoid
- Do not charge the per-account amount for every inaccurate statement without subsection (2) conditions.
Illustrative example
Worked example: inaccurate account details supplied by holders
Hypothetical facts (illustration only, not a real taxpayer): A bank that is a reporting financial institution under section 508(1)(k) files its statement. Twelve reportable accounts carry inaccurate information because the holders gave false information to the bank. The bank also fails to furnish correct information within the period under section 508(8). The number of accounts is assumed for illustration.
Section 455(1)
The bank provided inaccurate information and did not correct it within the section 508(8) period, so the authority may direct a penalty of ₹50,000.
Section 455(2)
The inaccuracy is due to false information from the holders, so the authority shall direct ₹5,000 per inaccurate account: 12 × ₹5,000 = ₹60,000.
Total
₹50,000 + ₹60,000 = ₹1,10,000.
Recovery
Under Section 455(3), the bank may recover ₹5,000 per inaccurate account from the relevant holder, or retain that sum from money it holds for that holder. This applies only to the ₹60,000 under Section 455(2), not to the ₹50,000 under Section 455(1).
Outcome
- Possible total: ₹1,10,000, of which ₹60,000 the bank may recover from the account holders.
- Section 455(1) uses "may"; Section 455(2) uses "shall" once its conditions are met.
Frequently asked questions
What is the penalty for inaccurate information in a statement of financial transaction?
₹50,000, under section 455(1), where the filer provides inaccurate information, fails to correct it within the period under section 508(8), or fails the due diligence requirement under section 508(9).
Is there a separate penalty specific to financial institutions?
Yes - section 455(2) adds ₹5,000 for every inaccurate reportable account where a reporting financial institution's inaccuracy stems from false information given by the account holder, on top of any penalty under sub-section (1).
Can the financial institution recover this penalty from the account holder?
Yes - section 455(3) lets the institution recover the amount from the account holder, or retain an equivalent sum out of money in its possession or coming to it from that holder.
Need help applying this provision to your situation?
Get help responding to a financial transaction reporting noticeLast updated 9 October 2026