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DPIA and DPDP Compliance: Legal Duties and Penalties

Guiding organisations toward responsible data use, stronger safeguards, and defensible compliance under India’s Digital Personal Data Protection Act, 2023 (DPDP Act).

Under the DPDP Act, a Data Protection Impact Assessment (DPIA) is not just a best practice – for Significant Data Fiduciaries (SDFs) it becomes a legal obligation. Rule 13 of the draft DPDP Rules requires SDFs to carry out DPIAs, appoint a Data Protection Officer (DPO) based in India, and engage an independent data auditor to periodically review compliance and risk.Source: The Leaflet

Failing to meet these obligations can expose an organisation to monetary penalties under the DPDP Act’s Schedule, where fines can reach up to ₹250 crore for security failures and up to ₹150 crore for breaches of SDF-specific duties.Source: iPleaders

Why DPIA Sits at the Heart of DPDP Compliance

A DPIA is a structured, documented risk assessment that looks at how a planned or ongoing processing activity affects individuals’ privacy and other rights. For DPDP, it serves three key purposes:

  • Pre-emptive risk control: identify how a project could cause harm to Data Principals before it is launched.
  • Accountability evidence: demonstrate to regulators that the organisation has assessed risks and put proportionate safeguards in place.
  • Design input: influence product, process, and vendor choices so privacy and security are built-in, not bolted on later.

Because SDFs typically handle large-scale, high-risk, or sensitive data processing, the DPIA becomes the central document that ties together risk assessment, controls, and board-level oversight.

Illustration of DPDP legal duties compliance
Who Is a Significant Data Fiduciary (SDF)?

The Central Government can classify a data fiduciary as an SDF based on factors such as volume and sensitivity of personal data processed, risk of harm to Data Principals, impact on sovereignty or democracy, and relevance to national security or critical infrastructure.

In practice, this often includes major digital platforms, financial institutions, healthcare providers, telecom operators, AdTech players, and AI-driven platforms that profile users or process children’s data at scale. Once designated as an SDF, enhanced obligations – including DPIA – become mandatory, not optional.

Core Legal Duties Linked to DPIA under DPDP

For an SDF, a DPDP-aligned DPIA is expected to cover and connect several legal duties:

  • Pre-assessment of high-risk processing: conduct a DPIA before starting any processing that is likely to cause significant risk, and repeat it when major changes occur.
  • Integration with reasonable security safeguards: document how controls such as encryption, access management, logging, contracts, and incident response mitigate the identified risks.Source: iPleaders
  • DPO involvement and independent data auditor: SDFs must appoint a DPO in India and engage independent auditors; the DPIA becomes a primary artefact for those reviews.
  • Ongoing monitoring and review: track whether risk levels, technologies, or purposes change and revisit the DPIA accordingly, incorporating lessons from incidents or complaints.
  • Board-level oversight: high-impact projects should receive senior management sign-off, especially when residual risk remains high.
When Skipping a DPIA Becomes a Breach

Under DPDP, an SDF that fails to carry out a DPIA where one is required risks breaching Section 10’s additional obligations, undermining privacy-by-design commitments, and failing the accountability requirement to produce a DPIA upon request.Source: iPleaders

In short, if a reasonable regulator would expect a DPIA and none exists, the organisation is in the breach zone.

Penalty Landscape: How Costly Can Non-Compliance Be?

The DPDP Act allows the Data Protection Board of India to investigate and impose monetary penalties. Relevant buckets include:

  • Up to ₹250 crore for failing to implement reasonable security safeguards.
  • Up to ₹200 crore for failing to notify breaches or violating children-specific duties.
  • Up to ₹150 crore for breaching additional obligations of an SDF (including DPIA and audits).
  • Up to ₹50 crore for breaching other provisions of the Act.

In a large-scale incident, multiple buckets can trigger simultaneously—for example, no DPIA plus weak security plus late notification equals exposure across all three provisions. This is why DPIA is described as non-negotiable for SDFs.Source: iPleaders

How the Board Decides the Penalty Amount

The Board considers the nature and seriousness of the breach, its duration, whether it was repeated, the data types involved, financial gains, and the mitigation steps taken.Source: Tsaaro

A well-designed DPIA, completed on time and backed by concrete safeguards, can reduce the perception of negligence and help limit penalties.

Practical Steps to Stay Compliant

To operationalise DPIA and DPDP compliance, organisations should embed the assessment into their governance lifecycle:

  • Create a DPIA policy & trigger rules: define when a DPIA is mandatory and align triggers with SDF classification.
  • Standardise the DPIA template: capture processing details, lawful basis, data categories, risks, controls, and residual risk decisions, mapped to DPDP obligations.
  • Integrate with change management: no high-risk project goes live without an approved DPIA.
  • Involve the right stakeholders: ensure DPO, security, legal/compliance, business, product, and engineering teams contribute; escalate very high-risk projects to senior management or external advisors.
  • Link DPIA to incident & breach management: update DPIAs with root-cause findings and new controls after any issue.
  • Audit and evidence trail: store DPIAs, approvals, and audit notes centrally to demonstrate proactive compliance.

Demonstrating this lifecycle proves that privacy risks are actively governed, not merely documented.