Budget 2026 Proposes Mandatory Late Fees On Delayed Tax Audits And Transfer Pricing Report
The Finance Minister Nirmala Sitharaman presented the Union Budget 2026 on February 1, 2026, where she announced the simplification of tax compliance by converting certain penalties into Mandatory or fixed fees for procedural and technical defaults. These changes are aimed at reducing disputes and unnecessary litigation, especially for genuine delays with no revenue loss.
These changes are effective from 1 April 2026 for Tax Year 2026-27.
Late Tax Audit Changes
Currently, section 446 of the Income Tax Act levies a penalty for not getting the accounts audited. Missing a tax audit or obtaining a tax audit report without a sufficient case results in a penalty of either 0.5% of your sales/turnover/gross receipts or Rs 50,000, whichever is lower.
Budgey 2026 has proposed to remove this penalty and replace it with a mandatory fee under new Section 428(c). For delays up to a specified period, a fee of Rs 75,000 will be levied. For delays beyond the specified period, a fee of Rs 1,50,000 will be levied.
Taxpayers must note that this fee is mandatory, non-discretionary, and not dependent on turnover or receipts. Additionally, Section 446 will cover penalties for wrong crypto transaction information.
Transfer Pricing Report Penalty
Currently, if a taxpayer fails to submit an accountant’s report under section 172, for international or specified domestic transactions, a penalty of Rs 1,00,000 is levied under section 447 of the Income Tax Act.
The proposed amendment converts the penalty under Section 447 into a fee under Section 428(4). A shorter delay will cost Rs 50,000, while a longer one is Rs 1,00,000.
Financial Transaction Statement Relief
Under Section 454(1), not filing the Statement of Financial Transactions (SFT) or reportable accounts attracts a penalty of Rs 500 per day for the period of default.
Budget 2026 proposed to shift the penalty under section 454(1) into a mandatory fee under Section 427(3), treating it as a simple compliance issue instead of a big offence.
Cap on Repeated Delays
Currently, if a taxpayer does not submit SFT even after a tax notice, the same attracts a penalty of Rs 1,000 under section 454(2) with no upper limit.
Now, the Budget 2026 proposed to introduce an upper limit of Rs 1,00,000 as the maximum leviable under Section 454(2). This will help in avoiding disproportionate penalties in long-pending technical defaults.
Government’s Objective
The Government has stated that penalties for procedural and technical defaults were causing unnecessary litigation and stress for taxpayers. By converting penalties into fixed or graded fees, the government aims to reduce uncertainty. This move supports a trust-based tax administration system and improves compliance.
These amendments are all effective from April 1, 2026, for the tax year 2026-27 onwards.
