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Direct Tax Laws and International Taxation · Penalties and Prosecutions

Prosecution and Offences under the Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

Prosecution is a criminal proceeding in court for an offence under the Income-tax Act, 2025, such as wilful attempt to evade tax (section 478). Punishment is imprisonment, fine or both, depending on the amount evaded. To solve a question, find the offence, check wilfulness, pick the amount slab, then state the punishment.

Understand Prosecutions and Offences under the Income-tax Act, 2025

A penalty is a monetary charge imposed by an income-tax authority after a civil-type proceeding. Prosecution is different. It is a criminal case before a court, and the punishment can include imprisonment. The same default can attract both. Section 478(3) says the punishment under that section is without prejudice to any penalty under any other provision of the Act.

The central offence is in section 478: wilful attempt to evade tax. Two situations are covered. Sub-section (1) covers wilfully attempting to evade any tax, penalty or interest chargeable or imposable, or under-reporting income. Sub-section (2) covers wilfully attempting to evade the payment of tax, penalty or interest. The key word is wilful. Mere error or a bona fide difference of opinion is not enough. The prosecution has to show intent.

Section 478(4) tells you what counts as a wilful attempt. It includes having in your possession or control books or documents with a false entry or statement, making or causing a false entry, wilfully omitting a relevant entry, or causing any other circumstance to exist that enables you to evade tax or its payment. The books or documents must be relevant to a proceeding under the Act.

The punishment depends on the amount sought to be evaded (or the tax on under-reported income). Above ₹50 lakh: simple imprisonment up to two years, or fine, or both. Above ₹10 lakh but not above ₹50 lakh: simple imprisonment up to six months, or fine, or both. In any other case: fine only. This slab structure applies from 1 April 2026 and replaced the earlier rigorous imprisonment structure, which had higher thresholds and longer terms. Answer on the current text.

Two more points complete the picture. Section 465 and section 468 impose fixed-sum penalties for procedural defaults, for example refusing to answer questions or failing to comply with section 397 (statements and TAN quoting). These are penalties, not prosecutions. Section 519 lets the Central Government tender immunity from prosecution and penalty to a person who makes a full and true disclosure to help expose concealment or evasion.

Key rules to remember

Section 478(1) and (2): offence
Wilful attempt to evade tax, penalty or interest (or its payment), or under-reporting income (sub-section 1 only) = offence
Intent (wilfulness) is essential. Sub-section (1) covers evasion of tax chargeable and under-reporting; sub-section (2) covers evasion of payment.
Punishment: amount above ₹50 lakh
Simple imprisonment up to 2 years, or fine, or both
Amount sought to be evaded, or tax on under-reported income, exceeds ₹50,00,000.
Punishment: above ₹10 lakh up to ₹50 lakh
Simple imprisonment up to 6 months, or fine, or both
Amount exceeds ₹10,00,000 but does not exceed ₹50,00,000.
Punishment: any other case
Fine only
Amount of ₹10 lakh or less. No imprisonment.
Section 478(3): penalty and prosecution together
Punishment under section 478 is without prejudice to any penalty under the Act
Both can be imposed for the same default.
Section 478(4): deemed wilful attempt
False entry held/made, wilful omission, or any circumstance enabling evasion
Applies to books or documents relevant to a proceeding under the Act.
Section 519: immunity
Central Government may tender immunity from prosecution and penalty for full and true disclosure
Reasons recorded in writing; withdrawn if conditions are breached, concealment or false evidence; person can then be tried and penalised.
Sections 465 and 468: fixed penalties
₹10,000 per default (465(1), 468); ₹500 per day (465(2))
These are penalties, not prosecutions. Section 468: Assessing Officer may impose ₹10,000 for failure under section 397 or quoting a false TAN.

How to solve Prosecutions and Offences under the Income-tax Act, 2025 questions

Use this sequence for any case-based question on offences and punishments.

  1. 1Identify the default in the facts: evasion of tax, under-reporting, evasion of payment, false entries, or a procedural failure.
  2. 2Test wilfulness. Look for concealment, false books, omitted entries or other deliberate conduct. If it is only a mistake, say so.
  3. 3Decide the sub-section: section 478(1) for evasion of tax or under-reporting, section 478(2) for evasion of payment.
  4. 4Fix the amount: the tax sought to be evaded, or the tax on under-reported income. Use tax, not income.
  5. 5Match the slab: above ₹50 lakh, above ₹10 lakh up to ₹50 lakh, or other. State the maximum imprisonment and that fine is an alternative or addition as per the slab.
  6. 6Note that penalty can also apply (section 478(3)), and mention any fixed penalty under sections 465 or 468 if a procedural default exists.
  7. 7Check for immunity under section 519 if the person is a cooperating witness who made full and true disclosure.
  8. 8Conclude with a clear statement of the consequence.

Quickest way: Three-question check

When to use it: For MCQs and short parts of a case question where you need the answer in under a minute.

  1. Is it wilful? If no, no section 478 offence.
  2. What is the tax evaded? Above ₹50 lakh: up to 2 years or fine or both. Above ₹10 lakh up to ₹50 lakh: up to 6 months or fine or both. Otherwise: fine.
  3. Is it a procedural default? Then it is a fixed penalty (₹10,000 or ₹500 per day), not prosecution.

Common mistakes in Prosecutions and Offences under the Income-tax Act, 2025

  • Using the old slabs of ₹25 lakh and rigorous imprisonment of up to seven years.

    Older notes and the Income-tax Act, 1961 provisions are widely circulated.

    Fix: For June 2027, use the current text: ₹50 lakh and ₹10 lakh thresholds, simple imprisonment up to two years or six months, with fine as an alternative.

  • Applying the slab to the income concealed instead of the tax.

    Students read 'amount' as the income figure given in the question.

    Fix: The test is the amount of tax sought to be evaded, or the tax on under-reported income. Compute the tax first.

  • Treating every default as prosecutable.

    Penalty and prosecution get blurred.

    Fix: Failures such as refusing to sign a statement or not complying with section 397 attract fixed penalties under sections 465 and 468. Prosecution needs an offence like wilful evasion.

  • Saying a penalty bars prosecution, or the reverse.

    Students assume double punishment is not allowed.

    Fix: Section 478(3) says the punishment is without prejudice to any penalty under any other provision of the Act.

  • Ignoring the word 'wilful'.

    Students jump straight to the punishment slab.

    Fix: Always state first whether there is deliberate conduct. Cite section 478(4) examples such as false entries or wilful omissions.

  • Thinking immunity under section 519 is a right of the accused.

    The word 'immunity' sounds automatic.

    Fix: It is a power of the Central Government, tendered for recorded reasons, on condition of full and true disclosure, and it can be withdrawn.

Worked examples

Example 1

Rohit Menon, a trader in Kochi, kept a second set of books that omitted cash sales. Assessment shows that the tax on the under-reported income is ₹62,00,000. Discuss the consequences under the Income-tax Act, 2025.

Show the solution
  1. Default: omission of sales entries and keeping a second set of books. This shows deliberate conduct, so it is a wilful attempt under section 478(4).
  2. Section 478(1) applies because there is evasion of tax and under-reporting of income.
  3. Amount: tax on under-reported income is ₹62,00,000, which exceeds ₹50 lakh.
  4. Punishment under section 478(1)(a): simple imprisonment up to two years, or fine, or both.
  5. Under section 478(3) this is without prejudice to any penalty imposable under other provisions of the Act.

Answer: Rohit can be prosecuted under section 478(1)(a): simple imprisonment up to two years, or fine, or both. Penalty under other provisions can also be imposed.

Example 2

Anita Desai, a consultant in Pune, did not comply with a summons under section 246(1) to produce her books of account at the specified time, and she also under-reported income so that the tax on it is ₹8,00,000, with no false entries and no wilful intent shown. Advise on penalty and prosecution.

Show the solution
  1. Non-compliance with a summons under section 246(1) falls under section 465(1)(c). Penalty is ₹10,000 for each default.
  2. This is a penalty, not prosecution. It is imposed by the authority under section 465(4).
  3. For the under-reporting: section 478 needs a wilful attempt. The facts say no wilful intent is shown, so prosecution under section 478 fails on that element.
  4. If wilfulness were proved, the tax of ₹8,00,000 does not exceed ₹10 lakh, so the case would fall under 'any other case' and the punishment would be fine only.

Answer: Anita is liable to a penalty of ₹10,000 under section 465(1)(c). Prosecution under section 478 is not made out without wilfulness, and even if proved the punishment would be fine only.

Exam tips

  • Write the slab thresholds in a small table-like list in your answer: above ₹50 lakh, above ₹10 lakh up to ₹50 lakh, other cases. Examiners look for the exact figures.
  • Always say 'simple imprisonment' and 'or fine, or both' for the two higher slabs, and 'fine' only for the lowest slab.
  • In case questions, quote the fact that shows wilfulness, such as false entries or omitted entries, and link it to section 478(4).
  • Separate penalty from prosecution in your conclusion. State which section gives each.
  • For MCQs, check the amount carefully: ₹50 lakh exactly falls in the middle slab, because the top slab needs the amount to exceed ₹50 lakh.

Practice questions from Penalties and Prosecutions

Prosecutions and Offences under the Income-tax Act, 2025 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Prosecutions and Offences under the Income-tax Act, 2025: frequently asked questions

What is the punishment for wilful attempt to evade tax under the Income-tax Act, 2025?

Under section 478, if the amount evaded exceeds ₹50 lakh, it is simple imprisonment up to two years, or fine, or both. Above ₹10 lakh up to ₹50 lakh, it is simple imprisonment up to six months, or fine, or both. In any other case, it is a fine.

What is the difference between penalty and prosecution under income tax?

A penalty is a sum of money imposed by an income-tax authority, often a fixed amount for a default. Prosecution is a criminal case in court for an offence, and it can lead to imprisonment. Section 478(3) allows both for the same matter.

Can a person escape prosecution under the Act?

Section 519 allows the Central Government to tender immunity from prosecution and penalty to a person who makes a full and true disclosure of concealment or evasion, for reasons recorded in writing. If the person breaks the conditions, conceals facts or gives false evidence, the immunity can be withdrawn and the person can be tried and penalised.

Does a mistake in a return lead to prosecution?

Section 478 requires a wilful attempt to evade tax or under-report income. An honest error without intent does not satisfy that. You should show deliberate conduct, such as false or omitted entries, to establish the offence.