Prosecution Provisions Under Income-tax Act 2025 Explained: Rules, Limits and Worked Examples
Reviewed by CA Nikhil Gupta · Last reviewed 26 September 2026
Corrected 26 September 2026: every section number, punishment and the compounding position were re-checked against Chapter XXII of the Income-tax Act, 2025 and the CBDT's revised compounding guidelines; the case study is now an illustration.
Penalty is a civil consequence imposed by the tax authority; prosecution is a criminal case in court. Chapter XXII of the Income-tax Act 2025 (Sections 473 to 498) carries forward the offences of the 1961 Act — failure to pay TDS or TCS, wilful evasion, failure to file returns, false statements, falsification of books — under new section numbers. This guide maps each offence, states the punishment as worded in the new Act, explains who can be prosecuted, and shows how sanction and compounding work.
Prosecution vs Penalty — The Critical Distinction
The same default can lead to both a penalty and a prosecution. They are decided by different authorities and work differently:
| Parameter | Penalty | Prosecution |
|---|---|---|
| Nature | Civil — a sum of money | Criminal — rigorous imprisonment and fine |
| Who decides | Assessing Officer and appellate authorities | A criminal court, after sanction (Section 491(1)) |
| Proof | Decided on the assessment record | A fact is "proved" only beyond reasonable doubt, but the court presumes a culpable mental state and the accused must prove its absence (Section 490) |
| Link between the two | Both can arise from one default. Section 491(3) restricts prosecution for certain offences where the related penalty under Section 439 has been reduced or waived under Section 469. | |
| Settlement | Not applicable | Compounding is possible (Section 491(4)) |
| Cognizance | Not applicable | Offences under Sections 476, 478, 479, 480, 482 and 484 are non-cognizable (Section 492) |
Key Prosecution Sections — Old to New Act Mapping
The new section numbers below are matched to the official section titles in Chapter XXII; the punishments are as worded in the Income-tax Act 2025.
| Offence | Old Section (1961 Act) | New Section (2025 Act) | Punishment (new Act) |
|---|---|---|---|
| Failure to pay TDS to the Central Government | 276B | 476 | Rigorous imprisonment of 3 months to 7 years, and fine. No offence if the tax is paid by the time prescribed for filing the statement under Section 397(3)(b) |
| Failure to pay tax collected at source | 276BB | 477 | Rigorous imprisonment of 3 months to 7 years, and fine; same payment proviso |
| Wilful attempt to evade tax, penalty or interest, or to under-report income | 276C(1) | 478(1) | Amount evaded (or tax on under-reported income) above ₹25 lakh: 6 months to 7 years and fine. Other cases: 3 months to 2 years and fine |
| Wilful attempt to evade payment of tax, penalty or interest | 276C(2) | 478(2) | 3 months to 2 years; fine at the court's discretion |
| Failure to furnish return of income | 276CC | 479 | Tax evaded above ₹25 lakh: 6 months to 7 years and fine. Other cases: 3 months to 2 years and fine. No prosecution if the return is filed within the time allowed under Section 263(4) or (6), or if tax payable after advance tax and TDS does not exceed ₹10,000 (companies excluded) |
| False statement in verification | 277 | 482 | Same two tiers as Section 478(1) |
| Falsification of books of account or documents | 277A | 483 | Rigorous imprisonment of 3 months to 2 years, and fine |
| Abetting or inducing a false return | 278 | 484 | Same two tiers as Section 478(1) |
| Second and subsequent offences | 278A | 485 | Rigorous imprisonment of 6 months to 7 years, and fine |
| Offences by companies | 278B | 487 | See "Who can be prosecuted" below |
| Prosecution sanction | 279(1) | 491(1) | Previous sanction of the Principal Commissioner, Commissioner, Commissioner (Appeals) or Joint Commissioner (Appeals) |
| Compounding | 279(2) | 491(4) | By the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General |
Who Can Be Prosecuted — Company Officers
Section 487 (old Section 278B) makes the company and the people running it answerable:
- Every person who was in charge of, and responsible to, the company for the conduct of its business when the offence was committed, and the company itself, are deemed guilty (Section 487(1)).
- A person escapes if they prove the offence happened without their knowledge, or that they exercised all due diligence to prevent it (Section 487(2)).
- A director, manager, secretary or other officer is also deemed guilty where the offence was committed with their consent or connivance, or is attributable to their neglect (Section 487(3)).
- For this section, "company" includes a firm and an association of persons or body of individuals, incorporated or not.
Illustration: TDS Deducted but Not Deposited
A company deducts ₹8.4 lakh of TDS from salaries during the year but deposits only ₹2.1 lakh. The balance of ₹6.3 lakh stays with the company and is deposited 14 months after deduction. This is the offence in Section 476 (old Section 276B): tax deducted but not paid to the Government. The company and the finance director who was in charge of the business are exposed under Section 487, unless the director can show lack of knowledge or due diligence.
Under the CBDT's revised compounding guidelines of 17 October 2024, the charge for this offence is 1.5% of the tax in default for each month or part of a month from the date of deduction to the date of deposit, and it cannot exceed the tax in default. Here: ₹6,30,000 × 1.5% × 14 months ≈ ₹1,32,300, assuming the full ₹6.3 lakh was outstanding throughout. The tax and interest due under the Act remain payable in addition.
Lesson: TDS collected from employees and vendors is money held for the Government. Depositing it before the statement due date avoids the offence altogether.
Compounding of Offences — Settling the Case
Section 491(4) allows any offence under Chapter XXII to be compounded, before or after proceedings begin, by the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General. Compounding is a power, not a right: an applicant cannot demand it. The practical rules come from CBDT guidelines:
- Current guidelines: the CBDT issued revised compounding guidelines on 17 October 2024, replacing all earlier guidelines including those of 2019, and followed them with FAQs in Circular No. 04/2025 (17 March 2025). They were issued under the 1961 Act; check for any updated guidance under the new Act.
- What changed: offences are no longer placed in categories, there is no limit on how many times an application may be made, a fresh application is allowed after a defect is cured, and the earlier 36-month deadline from filing of the complaint was removed. Section 276B (TDS non-deposit) is compoundable.
- Charge for TDS non-deposit: 1.5% of the tax in default per month or part of a month, capped at the tax in default.
- Effect: compounding closes the criminal case. It does not remove the tax, interest or any penalty that is due under the Act.
Statutory Protections Against Prosecution
- Sanction first: for offences under Sections 473 to 484, no one can be prosecuted without the previous sanction of the Principal Commissioner, Commissioner, Commissioner (Appeals) or Joint Commissioner (Appeals) (Section 491(1)).
- Payment proviso: no offence under Section 476 or 477 if the tax is paid by the time prescribed for filing the statement under Section 397(3)(b).
- Reasonable cause: no punishment for a failure under Section 476 or 477 if the person proves reasonable cause (Section 486).
- Late returns: no prosecution under Section 479 if the return is filed within the time allowed under Section 263(4) or (6), or if the tax payable after advance tax and TDS is ₹10,000 or less (not available to companies).
Prevention Is Better Than Compounding
- Deposit TDS by the 7th of the following month (30 April for March deductions).
- File returns by the due date; a late return after notice is the situation Section 479 looks at.
- Keep books and statements accurate — Sections 482 and 483 deal with false statements and falsified records.
- If TDS was missed, deposit it immediately, file the correction statement and keep proof of the dates.
- If a prosecution notice arrives, involve a tax advocate at once and consider a compounding application.
- Directors and finance heads are exposed personally under Section 487 — track company-level TDS compliance every month.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometaxindia.gov.in
Page source links
The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.
Primary sources & related provisions
Statutory provisions referenced in this guide:
- Section 476 (Failure to pay tax to credit of Central Government under…) - Income-tax Act
- Section 478 (Wilful attempt to evade tax, etc) - Income-tax Act
- Section 479 (Failure to furnish returns of income) - Income-tax Act
- Section 487 (Offences by companies) - Income-tax Act
- Section 491 (Prosecution to be at instance of Principal Chief…) - Income-tax Act