The government has proposed a comprehensive rationalisation of prosecution provisions under the Income-tax Act, 2025. The amendments aim to decriminalise minor offences, reduce excessive imprisonment, and make punishments proportionate to the gravity of tax offences.
Chapter XXII of the Income-tax Act, 2025 currently contains stringent criminal provisions, prescribing rigorous imprisonment ranging from three months to seven years for a wide range of offences such as falsification of books, non-deposit of TDS/TCS, wilful tax evasion, failure to file returns, concealment of property, false statements, and non-compliance with directions of tax authorities.
Official copy of the Clause is as follows
Rationalization of prosecution proceedings
Income-tax Act, 2025 (hereinafter referred as the 'Act') has various provisions in chapter XXII which imposes criminal liability on assessee and prescribes imprisonment including rigorous imprisonment which span from three months to seven years for various offences including falsification of books of accounts, failure to credit TDS/TCS deducted, tendering false statement, wilful attempt to evade tax, failure to furnish return within due time, abatment of false return, removal/concealment/transfer of property to evade recovery of tax, failure to follow certain directions of AO, etc.
2. Section 473 to 485 prescribe various offences on the part of assessee and form and manner of punishment and the conditions therein including time limitation, exceptions, threshold for amount of tax evaded and its punishment, punishment for subsequent offences, etc.
3. Section 473 deals with the contravention of order made under section 247(Search & Seizure) by the assessee in an attempt to derail the search proceedings and tamper with the evidence. At the same time, section 474 deals with the offence of not providing the necessary facility to inspect the books of account of other documents during search proceedings. Section 475 penalises the assessee in case of offence of removal, concealment, transfer or delivery of property to prevent tax recovery.
4. Section 476 criminalises the offence of not crediting the TDS deducted in the account of Central Government. This section covers four offences which are TDS deducted for winnings from lottery, crossword puzzle; winning from online games; benefit or perquisite arising from business or profession; sum for transfer of a virtual digital asset. In the similar manner, section 477 deals with tax collected at source but not credited to the account of Central Government.
5. Section 478 deals with the offence of wilful attempt to evade any tax, penalty or under reporting of income and payment of any tax, penalty or interest. Section 479 criminalises the offence to failure to furnish return either by issuance of notice under this Act or otherwise. In the similar manner, section 480 penalises the offence of failure to furnish return in search cases.
6. In case, assessee failed to produce the books of accounts or other documents or failed to follow direction of Assessing Officer, section 481 criminalises this offence. In case, a person makes false statement or delivers an account which is false, section 482 prescribes punishment for this offence. Section 483 penalises the offence of falsification of books of accounts or documents or made entry or statement which is false in books of account. Section 484 deals with offence of abatement of false return wherein person makes or delivers an account or statement relating to any income which is false. Further, section 485 deals with second and subsequent offences. Section 494 deals with disclosure of particulars by public servants.
7. In this regard, it is proposed to amend Section 473 to 485 & 494 of the Act in light of continued exercise of decriminalisation and to make the punishment for the offences mentioned in these sections proportionate to the crimes. The principles that are followed in the proposed decriminalization exercise are as follows:
(a) The nature of punishment is changed from rigorous imprisonment to simple imprisonment wherever prescribed in the sections mentioned above.
(b) Maximum punishment is proposed to be limited to 2 years from its current 7 year and for the subsequent offences, it is reduced to 3 years from its current 7 years.
(c) Wherever punishment of offences is prescribed based on certain grading of amount of tax evaded, new grading of offences and its corresponding punishment is prescribed.
(d) For amount of tax evaded does not exceeds ten lakh rupees, punishment of only fine is prescribed.
(e) Imposition of fine is introduced in lieu of or in addition of imprisonment.
(f) Certain offences are fully decriminalized.
8. Following changes in the nature and period of punishment in section 473 to 485 & 494 are proposed based on the principles of decriminalisation followed as discussed in para 7:
(a) In section 473, punishment for the offences mentioned under section 473 is proposed to be changed from its current "rigorous imprisonment for a term which may extend to two years and shall also be liable to fine" to "simple imprisonment upto two years and fine".
(b) In section 474, punishment for the offences mentioned under section 474 is proposed to be changed from its current "rigorous imprisonment for a term which may extend to two years and shall also be liable to fine" to "simple imprisonment upto 6 months and/or fine".
(c) In section 475, punishment for the offences mentioned under section 475 is proposed to be changed from its current "rigorous imprisonment for a term which may extend to two years and shall also be liable to fine" to "simple imprisonment upto two years and fine".
(d) In case of offences related to tax deducted at source (TDS):
(i) If a person fails to pay the tax deducted at source or ensures the payment of such tax, in case of winnings from Lottery or crossword puzzle etc. as required under section 476(1)(b)(i) and if a person fails to pay and ensure payment of tax deducted at source in case of benefits or perquisite under section 476(1)(b)(ii) then the punishment for these offences is rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. These offences are proposed to be fully decriminalized.
(ii) Further, in similar manner, if a person fails to pay tax deducted at source or ensure payment of tax in case of winnings from online games under section 476(1)(b)(i) and consideration from virtual digital asset under section 476(1)(b)(ii) then these offences attract punishment of rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine.
In these cases, winnings from online games and consideration from virtual digital asset which are wholly in kind are also proposed to be excluded from criminal liability related to prosecution in case of failure to pay tax or ensure payment of tax. In any other case, punishment in these cases under section 476 is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where amount of such tax exceeds fifty lakh rupees;
(b) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where amount of such tax exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(e) In section 477, punishment for the offences mentioned under section 477 is rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. This punishment is proposed to be changed in the manner given below:
(i) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where amount of such tax exceeds fifty lakh rupees;
(ii) with simple imprisonment for a term upto six months or with fine, or with both, in a case where amount of such tax exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(iii) with fine, in any other case.
(f) In case of wilful attempt to evade tax,
(i) In section 478(1), punishment for the offences as mentioned under section 478(1) is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount sought to be evaded or tax on under-reported income exceeds fifty lakh rupees;
(b) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where the amount sought to be evaded or tax on under-reported income exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(ii) In section 478(2), punishment of offences under section 478(2) is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount sought to be evaded exceeds fifty lakh rupees;
(b) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where the amount sought to be evaded exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(g) In section 479, punishment for the offences mentioned under section 479(1) is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds fifty lakh rupees;
(b) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(h) In section 480, punishment for the offences mentioned under section 480 is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount of tax exceeds fifty lakh rupees;
(b) with simple imprisonment upto six months, or with fine, or with both, in acase where the amount of tax, exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(i) In section 481, punishment for the offences mentioned under section 481 is proposed to be changed in the manner given below:
(a) in the case where a person wilfully fails to produce, or cause to be produced, the accounts and documents as are referred to in the notice served on him under section 268(1) on or before the date specified in such notice, this provision under section 481 is proposed to be fully decriminalised.
(b) in the case where a person wilfully fails to comply with a direction issued to him under section 268(5), the punishment is proposed to be changed from its current "rigorous imprisonment for a term which may extend to one year and with fine" to simple imprisonment for a term upto six months, or with fine, or with both.
(j) In section 482, punishment for the offences mentioned under section 482 is proposed to be changed in the manner given below:
(a) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds fifty lakh rupees;
(b) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(c) with fine, in any other case.
(k) In section 483, punishment for the offences mentioned under section 483(1) is proposed to be changed from its current "rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine" to "simple imprisonment for a term upto two years and shall also be liable to fine".
(l) In section 484, punishment for the offences mentioned under section 484 is proposed to be changed in the manner given below:
(i) with simple imprisonment for a term upto two years, or with fine, or with both, in a case where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds fifty lakh rupees;
(ii) with simple imprisonment for a term upto six months, or with fine, or with both, in a case where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds ten lakh rupees but does not exceed fifty lakh rupees;
(iii) with fine, in any other case.
(m) In section 485, punishment for the offences mentioned under section 485 is proposed to be changed from its current "rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years, and with fine" to "simple imprisonment for a term which shall not be less than six months but which may extend to three years and shall also be liable to fine".
(n) In section 494, punishment for the offences mentioned under section 494(1) is proposed to be changed from its current "imprisonment which may extend to six months, and shall also be liable to fine" to "simple imprisonment upto one month, or with fine, or with both".
9. Heading of sections in following sections of the Act is proposed to be aligned with the Act and further simplify the Act:
(a) In section 473, heading of the section is changed to "Contravention of order made during search action".
(b) In section 474, heading of the section is changed to "Failure to afford facility for inspection of books of account during search".
(c) In section 478, heading of the section is changed to "Failure to comply with a direction of special audit or valuation".
10. Similar principles as referred in para 7 has been followed to make amendments of similar nature as referred in para 8 & 9 in relevant prosecution provisions i.e. section 275A to 278A & 280 of Income-tax Act, 1961.
11. The amendments in section 473 to 485 & 494 of Income-tax Act, 2025 will take effect from the 1st day of April, 2026.
12. The amendments in section 275A to 278A & 280 of Income-tax Act, 1961 will take effect from the 1st day of March, 2026.
[Clause 17 to 25 and clause 93 to 105]
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