Section 12 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 12 is the main record-keeping duty of a reporting entity. It must keep a record of all transactions in a way that lets individual transactions be reconstructed, furnish prescribed information to the Director, and keep documents evidencing the identity of clients and beneficial owners, together with account files and business correspondence. The records must be kept for five years on the footing the section describes.
This article reads the section from the consolidated text of the Act consulted (amendments shown up to 1 August 2019). Later amendments, rules and notifications should be checked; nothing after that date is stated here.
A reporting entity must maintain a record of all transactions so that individual transactions can be reconstructed, furnish prescribed information to the Director, and maintain identity records of clients and beneficial owners with account files and business correspondence. Transaction records are kept five years from the date of transaction; identity records five years after the relationship ends or the account is closed, whichever is later. Information is confidential save as another law provides. The Central Government may exempt by notification.
What section 12 is and how it came to be
Section 12 was substituted by Act 2 of 2013, section 9 (w.e.f. 15-2-2013), as the footnote prints. It applies to a "reporting entity", a term defined in section 2(1)(wa); see our article on the reporting entity definitions.
If you run or advise a reporting entity and want the record-keeping set up read against the section, a legal consultation can help you check what is kept, for how long and from which date. Our general guide, PMLA 2002 and money laundering compliance for banks, NBFCs and businesses, gives a wider overview.
Sub-section (1): the three duties
| Clause | Duty as printed |
|---|---|
| (a) | Maintain a record of all transactions, including information relating to transactions covered under clause (b), in such manner as to enable it to reconstruct individual transactions |
| (b) | Furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed |
| (e) | Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients |
Clauses (c) and (d) are shown by a row of asterisks. The footnote says they were omitted by Act 14 of 2019, section 28 (w.e.f. 25-07-2019). The clauses therefore run (a), (b), (e), and nothing is missing from the text that the reader needs to supply.
Three points follow from the wording.
- Reconstruct. The standard in clause (a) is not just keeping documents; it is keeping records "in such manner as to enable it to reconstruct individual transactions".
- Attempted or executed. Clause (b) covers information on transactions "whether attempted or executed". The nature and value of the transactions to be reported are left to be prescribed, and the time is left to be prescribed. The Act as consulted gives no figure and no time limit for the reports.
- Identity and files. Clause (e) covers three things: documents evidencing identity of clients and beneficial owners; account files; and business correspondence relating to clients.
The rules made under this section, which prescribe the transactions and the time, are the subject of our article on records of transactions under the Maintenance of Records Rules. Our general guide on suspicious transaction reporting covers one kind of report in general terms.
Sub-section (2): confidentiality
Every information maintained, furnished or verified, "save as otherwise provided under any law for the time being in force", shall be kept confidential. The words show that the confidentiality is subject to what other law provides. The text does not list those laws, and this article names none. The reader should check the current law for any provision that requires or permits disclosure.
Sub-sections (3) and (4): how long
| Sub-section | Records | Period |
|---|---|---|
| 12(3) | Records referred to in clause (a) of sub-section (1), i.e. the transaction records | Five years from the date of transaction between a client and the reporting entity |
| 12(4) | Records referred to in clause (e) of sub-section (1), i.e. identity documents, account files and business correspondence | Five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later |
The two periods start at different points. For a transaction record, the clock starts on the date of the transaction. For an identity record, it starts when the relationship ends or the account is closed, whichever happens later. Where both could apply to the same piece of paper, such as a cheque copy that is both a transaction record and part of the account file, the reporting entity should read both sub-sections; the text consulted does not say which prevails.
The same period of five years appears in sub-section (4) of section 12AA, for the information obtained in applying enhanced due diligence; see our article on section 12AA.
Sub-section (5): exemption by notification
The Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under Chapter IV. The text consulted contains no notification, so whether any entity is exempt cannot be answered from it.
Where section 12 sits among its neighbours
| Section | What it adds |
|---|---|
| 11A | Verification of identity of clients and beneficial owners |
| 12 | Records, furnishing information, retention |
| 12A | Director's power to call for records |
| 12AA | Enhanced due diligence for specified transactions |
| 13 | Inquiry and penalty for failure to comply with Chapter IV |
| 14 | Protection for furnishing information under section 12(1)(b) |
| 15 | Procedure and manner to be prescribed |
An illustration
The names are invented. Orchid Broking Services Ltd is a reporting entity. On 10 March 2022 it executed a transaction for its client, Ms Tara Iyer. Section 12(3) points to a record of the transaction being kept for five years from 10 March 2022. Ms Iyer's account was closed on 5 June 2023, and her identity documents, account file and business correspondence are to be kept for five years after 5 June 2023, or after the end of the business relationship, whichever is later. If the Director, acting under section 12(1)(b) read with the rules, asks for information about an attempted transaction that never completed, the information is also within the clause.
The illustration shows only how the periods are counted from the text; it describes no real person or company.
Need help with record-keeping under the Act?
Gaps in records are found at the moment they are called for. We can review what your entity keeps, from which date, and in what form, through legal consultation.
Key takeaways
- A reporting entity must keep a record of all transactions so that individual transactions can be reconstructed (section 12(1)(a)).
- It must furnish to the Director, within the prescribed time, information on transactions whether attempted or executed (section 12(1)(b)).
- It must keep identity documents, account files and business correspondence of clients and beneficial owners (section 12(1)(e)).
- Transaction records are kept five years from the date of transaction; identity records five years after the relationship ends or the account is closed, whichever is later.
- Information is confidential, save as otherwise provided under any law for the time being in force.
- The Central Government may exempt a reporting entity or class by notification.
Read next
- Section 12A: Director's access to information
- Section 12AA: enhanced due diligence for specified transactions
- Section 13: powers of Director to impose fine on a reporting entity
- Reporting Entity Obligations Under PMLA: CAs, Banks, NBFCs
Disclaimer: Based on the consolidated text of the Prevention of Money-laundering Act, 2002 published by the Enforcement Directorate, showing amendments up to Act 23 of 2019 (1 August 2019), and on the Department of Revenue consolidated copy of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 listing amendments up to 19 July 2024, as consulted on 2 October 2026. Later amendments, notifications, other rules and regulator directions should be checked. This article is general information, not legal advice; check the official text before acting.