The Biz Reporter
New Delhi: The Finance Bill, 2026 has triggered anxiety among businesses and professionals by introducing steep, mandatory fines for delays in tax audit compliance, effectively ending the discretionary penalty system that existed so far.
Under the proposed Section 428, a fine of ₹75,000 will be imposed from the very first day of delay in filing a tax audit report. If the delay continues beyond 30 days, the fine will double to ₹1.5 lakh, sharply escalating the financial burden on taxpayers.
The new framework applies where a taxpayer fails to get accounts audited or does not furnish the tax audit report under Section 63. Unlike the earlier system, the fine will be automatic and unavoidable, leaving no room for relief based on genuine hardship or reasonable cause.
Further tightening the noose, the Bill also introduces heavy fines under Section 172 for failure to submit reports certified by a chartered accountant. Taxpayers will face a ₹50,000 fine for the first month of default, which will rise to ₹1,00,000 if the delay continues thereafter.
Tax experts say the move marks a dramatic shift from the existing regime. Himanshu Parekh, Partner and Head of Tax (West) at KPMG in India, explained that earlier, tax authorities could levy a penalty of 0.5% of turnover or sales, subject to a maximum of ₹1.5 lakh, depending on circumstances.
“Now, a minimum fine of ₹75,000 kicks in immediately, and ₹1.5 lakh after one month, regardless of turnover or intent,” Parekh said, warning that the entry-level fine itself has become punitive.
While standard income tax return delays continue to attract relatively smaller fines — capped at ₹1,000 for incomes up to ₹5 lakh and ₹5,000 for others — professionals fear that audit-linked fines will hit MSMEs and small firms the hardest.
The proposals have landed amid a heated Parliament session, with Rahul Gandhi questioning the government’s intent, asking “What is scaring the Modi government?” after interruptions by Rajnath Singh and Amit Shah during discussions on national issues.
The government maintains that the new fine-based system will bring certainty and stricter compliance discipline. The provisions will take effect from April 1, 2026, and apply to Assessment Year 2026–27 and onwards.
