Penalty to Late Fees: A Shocker for Every Chartered Accountant
The Finance Bill, 2026, introduces a pivotal change in how defaults regarding tax audit reports are managed. Under the Income-tax Act, 2025, a significant shift is underway as the penalty for failing to conduct accounts audits and furnish the required report transitions into a mandatory late fee structure.
Key Details of the Late Fees for Late Tax Audit Reports
1. Proposed Fee Structure
According to the proposed Section 428(c) of the Income-tax Act, 2025, individuals failing to audit their accounts and submit the report as mandated under Section 63 will incur a fee based on the duration of their delay:
- ₹ 75,000: Applicable for delays up to one month.
- ₹ 1,50,000: Applicable for delays extending beyond one month.
2. Transition from Penalty to Fee
This initiative marks a strategic move from penal provisions towards a fee-based compliance system aimed at mitigating litigation stemming from technical faults.
- Previous Provision (Section 446): Previously, the failure to audit accounts resulted in a penalty calculated as the lesser of 0.5% of total sales/turnover/gross receipts or ₹ 1,50,000.
- New Provision: The Finance Bill proposes the omission of the penalty under Section 446, substituting it with a fixed fee mechanism under Section 428(c).
3. Effective Date
These amendments will be effective from April 1, 2026, applying to the tax year 2026-27 and the years that follow.
By: Abhishek Rajaram
Conclusion
The shift from penalties to a structured fee could alter the compliance landscape for chartered accountants, emphasizing the need to prioritize timely tax audit submissions. Understanding these changes will be crucial for professionals navigating the upcoming tax landscape.