Failure to Pay TDS to Credit of Central Government

Section 476 — - FAILURE TO PAY TDS TO CREDIT OF CENTRAL GOVERNMENT

Section 476 of the Income-tax Act, 2025 corresponds to s. 276B of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 476(1) was substituted by the Finance Act, 2026, w.e.f. 1-4-2026. It punishes a failure to pay tax deducted at source to the credit of the Central Government as required by Chapter XIX-B, and a failure to pay, or ensure payment of, tax on winnings from online games under s.393(3) [Table: Sl. No. 2] or on consideration for a virtual digital asset under s.393(1) [Table: Sl. No. 8(vi)], other than winnings or consideration wholly in kind. The punishment is graded by the amount of tax: (i) simple imprisonment up to two years, or fine, or both, where the tax exceeds ₹50 lakh; (ii) simple imprisonment up to six months, or fine, or both, where it exceeds ₹10 lakh but not ₹50 lakh; (iii) fine only, in any other case. The text before substitution, like s.276B of the 1961 Act, provided rigorous imprisonment of not less than three months and up to seven years, with fine. Under s.476(2) the section does not apply where the deducted tax is paid on or before the time prescribed for filing the statement under s.397(3)(b). The offence is failure to pay tax deducted, not failure to deduct, which is dealt with under s.398 (formerly s.201 and s.271C of the 1961 Act). Culpable mental state is presumed under s.490, and s.486 excuses a failure for which reasonable cause is proved.

PRACTITIONER PLANNING NOTES

• Compounding available u/s 491 [279(2)] -- pay tax + interest + compounding fee (12-25% of tax depending on stage); avoid trial.
• The Finance (No. 2) Act, 2024 inserted a proviso to s.276B of the 1961 Act, w.e.f. 1-10-2024, excluding prosecution where the deducted tax is paid on or before the time prescribed for filing the statement under s.200(3). Section 476(2) carries the same rule, by reference to the statement under s.397(3)(b).
• Madhumilan Syntex Ltd. v. Union of India (2007) 290 ITR 199 (SC), decided on 23 March 2007: on a prosecution of a company and its directors under s.276B read with s.278B of the 1961 Act for late payment of tax deducted at source, the Supreme Court held that directors named as principal officers under s.2(35) could be proceeded against, that later payment of the tax with interest did not wipe out the default, that the availability of penalty did not bar prosecution, and that reasonable cause under s.278AA was a matter for evidence at trial. Under the 2025 Act, s.476(2) now excludes prosecution where the tax is paid on or before the time prescribed for filing the statement under s.397(3)(b).
• Compulsory company prosecution -- principal officer also chargeable u/s 487 [278B]; obtain Director protection by recording Board minutes showing no role.

CROSS-REFERENCES

• s. 491 [279] -- sanction and compounding.
• s. 486 [278AA] -- reasonable cause.
• s. 487 [278B] -- offences by companies.
• s. 490 [278E] -- presumption of culpable mental state.