Income Tax Offences and Prosecution: Tax Evasion, False Return and Abetment under the Income Tax Act 2025

Under the Income Tax Act 2025, income tax prosecution is a criminal case in court for a wilful wrong, such as evading tax, hiding income in the books, not filing a return on purpose, signing a false statement, or helping someone else do any of these. Sections 478 to 484 set the punishment. Since 1 April 2026 the punishment depends mostly on the amount of tax involved: above Rs 50 lakh the maximum is simple imprisonment up to two years, with or without fine; above Rs 10 lakh and up to Rs 50 lakh it is up to six months; below that, only a fine.

This guide explains each offence in plain language, shows the amount bands with worked examples, and covers the safeguards: the filing safe harbours in section 479(2), the immunity route in section 440, and the sanction required before a case can start under section 491. Every figure comes from the Act as amended by the Finance Act, 2026, with the section number alongside. Last reviewed against that text on 10 November 2026.

What is the difference between a tax penalty and prosecution?

A penalty is an amount the tax department levies by an order, for example for under-reporting income. Prosecution is a criminal complaint filed in a court that can end in a fine or imprisonment. They are separate. Section 478(3) says the punishment under that section is without prejudice to any penalty imposable under another provision of the Act, so the same facts can attract both.

Which offences do sections 478 to 484 cover?

Section	Offence	Who it targets
478(1)	Wilfully attempting to evade tax, penalty or interest, or under-reporting income	The taxpayer
478(2)	Wilfully attempting to evade payment of tax, penalty or interest	The taxpayer
479	Wilfully not filing a return of income in due time	The person required to file
480	Wilfully not filing a return of undisclosed income for the block period after a notice under section 294(1)(a)	The person served with the notice
482	A false statement in a verification, or a false account or statement delivered under the Act or Rules	The person who signs or delivers it
483	False entries in books or documents to help another person evade tax	The person who makes the false entry
484	Abetting or inducing a false account or statement, or an offence under section 478(1)	The helper or adviser

How much punishment applies at each tax amount?

Sections 478, 479, 480, 482 and 484 use the same three bands. Section 478 measures the amount sought to be evaded or the tax on under-reported income. Section 479 measures the tax that would have been evaded if the failure had not been discovered. Section 482 measures the tax that would have been evaded if the statement had been accepted as true. Section 484 measures the tax, penalty or interest that would have been evaded or is wilfully attempted to be evaded.

Section 483 does not use bands. It carries simple imprisonment up to two years and fine, whatever the amount.

What changed from 1 April 2026?

The Finance Act, 2026 replaced the old wording in these sections. The footnotes to the sections show the earlier text:

Section	Before 1 April 2026	From 1 April 2026
478(1)	Above Rs 25 lakh: rigorous imprisonment of 6 months to 7 years, and fine. Otherwise: 3 months to 2 years, and fine	Bands of Rs 50 lakh and Rs 10 lakh as above; the lowest band is fine only
478(2)	Rigorous imprisonment of 3 months to 2 years, and fine at the court's discretion	Same three bands, on the amount sought to be evaded
479, 482, 484	Above Rs 25 lakh: 6 months to 7 years, and fine. Otherwise: 3 months to 2 years, and fine	Three bands as above
480	Imprisonment of 3 months to 3 years, and fine	Three bands as above, measured on the amount of tax
483	Rigorous imprisonment of 3 months to 2 years, and fine	Simple imprisonment up to 2 years, and fine
485 (repeat offence)	Rigorous imprisonment of 6 months to 7 years, and fine	Simple imprisonment of 6 months to 3 years, and fine

The table compares the text printed in the Act. It does not say which version applies to a particular earlier year. Whether the old or the new wording governs a past-year case is a legal question for the adviser handling that case.

What counts as a wilful attempt to evade tax?

Section 478(1) covers any wilful attempt, in any manner, to evade tax, penalty or interest, and also covers under-reporting of income. Section 478(4) lists situations that are included in a wilful attempt. A person:

• has in possession or control books of account or documents, relevant to a proceeding under the Act, that contain a false entry or statement;
• makes, or causes to be made, a false entry or statement in such books or documents;
• wilfully omits, or causes to be omitted, a relevant entry or statement; or
• causes any other circumstance to exist that has the effect of enabling the person to evade tax, penalty, interest, or the payment of it.

The word to notice is "wilfully". Sections 478, 479 and 480 all require a wilful act or failure. An honest mistake in a return is a matter for assessment and, where applicable, penalty. It is not an offence of this kind without wilful intent.

How are the bands applied? Worked examples

Both cases below are for tax year 2026-27. For illustration, the tax on the hidden income is taken at a flat 30% of that income. Real tax also depends on the slab, surcharge and cess, so use the figure from the actual assessment.

	Case 1: Ravi, trader	Case 2: Meena, consultant
What happened	Leaves out cash sales of Rs 1,80,00,000 from his books	Leaves out professional receipts of Rs 40,00,000
Tax at assumed 30%	1,80,00,000 x 30% = Rs 54,00,000	40,00,000 x 30% = Rs 12,00,000
Band	Above Rs 50 lakh: section 478(1)(a)	Above Rs 10 lakh, up to Rs 50 lakh: section 478(1)(b)
Maximum punishment	Simple imprisonment up to 2 years, or fine, or both	Simple imprisonment up to 6 months, or fine, or both

The edges matter. Tax of exactly Rs 50 lakh is not "above" Rs 50 lakh, so it falls in the middle band. Tax of exactly Rs 10 lakh is not "above" Rs 10 lakh, so it falls in the fine-only band.

Case 3: a failure to file that is not prosecuted

Kiran, an individual, did not file her tax year 2026-27 return by the due date. Her tax on total income is Rs 4,20,000, TDS of Rs 3,95,000 was deducted, and she paid advance tax of Rs 20,000.

Step	Working	Result
1. Tax on total income	As assessed	Rs 4,20,000
2. Less TDS	4,20,000 - 3,95,000	Rs 25,000
3. Less advance tax	25,000 - 20,000	Rs 5,000
4. Compare with Rs 10,000	5,000 is not more than 10,000	Section 479(2)(b) applies, so no prosecution under section 479(1)

Section 479(2)(b) applies to a person who is not a company. The advance tax and self-assessment tax counted are those paid before the period in section 263(4) expires. Had the net tax been Rs 1,00,000, this safe harbour would not apply, but the other one below might.

When can a person not be prosecuted for not filing a return?

Section 479(2) says a person shall not be proceeded against under section 479(1) for failure to file in due time under section 263(1) for a tax year if either condition is met:

The first route depends on section 263. Under section 263(4), a person who missed the due date may furnish the return within nine months from the end of the tax year, or before assessment is completed, whichever is earlier. Under section 263(6), an updated return can be furnished within 48 months from the end of the financial year following the tax year. For tax year 2026-27, which ends on 31 March 2027, nine months runs to 31 December 2027. Our guides on belated and revised returns and updated returns cover those routes.

What is the offence of a false statement in verification?

Section 482 applies when a person makes a statement in a verification under the Act or Rules, or delivers an account or statement, that is false and that the person knows or believes to be false, or does not believe to be true. The bands are the same, measured on the tax that would have been evaded if the statement had been accepted as true.

This is why the verification on a return matters. Whoever signs it answers for what it says.

What if someone falsifies books to help another person?

Section 483 targets the "first person" who, wilfully and intending to help a "second person" evade tax, interest or penalty, makes or causes to be made a false entry or statement in books or documents relevant to proceedings against either of them. Punishment is simple imprisonment up to two years and fine.

Section 483(2) adds that the charge can be established without proving that the second person actually evaded any tax. The false entry made with that intent is enough.

Can an adviser be prosecuted for abetment?

Yes. Section 484 punishes a person who abets or induces another to make a false account, statement or declaration about income chargeable to tax, or to commit an offence under section 478(1). The same three bands apply, measured on the tax, penalty or interest that would have been evaded or is wilfully attempted to be evaded.

Real-life examples

• Arjun, the bookkeeper (section 483). A client asks Arjun to record a fake purchase bill in the ledger so the client can lower his profit. Arjun knows the bill is false and posts it. Even if the client's assessment is later settled without any extra tax, Arjun has made a false entry with intent to help another person evade tax, and section 483(2) removes the need to prove that evasion happened.
• Suresh, the consultant (section 484). Suresh tells a client to declare an expense that never happened, and the client does. Suresh has induced a false statement about income. His exposure sits in the band of the tax that would have been evaded.
• Divya, the careful filer (section 482). Divya is not sure whether a receipt of Rs 90,000 is taxable and reports it with a note explaining her position. She believes the statement is true. The offence needs a statement the person knows or believes to be false, or does not believe to be true.
• Imran, the late filer (section 479). Imran forgets his return and files it on 15 October, within nine months of the tax year end. Section 479(2)(a) says no proceedings under section 479(1) for that failure. Other consequences of late filing are outside this article.

Does anyone need permission before launching a prosecution?

Yes. Under section 491(1), no one can be proceeded against for an offence under sections 473 to 484 without the previous sanction of the Principal Commissioner, Commissioner, Commissioner (Appeals) or Joint Commissioner (Appeals). Section 491(3) adds that a person cannot be proceeded against under section 478 or 482 for a tax year where the penalty under section 439 was reduced or waived by an order under section 469. Section 491(4) allows any offence under the Chapter to be compounded, before or after proceedings begin, by the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General.

How does immunity from prosecution work under section 440?

An assessee can apply to the Assessing Officer for waiver of a section 439 penalty and for immunity from proceedings under section 478 or 479. Section 440(1) sets the conditions:

• the tax and interest under the assessment or reassessment order were paid within the period in the demand notice;
• where the penalty relates to section 439(11)(a) to (f), additional income-tax of 100% of the tax on under-reported income was paid in place of the penalty; for section 439(11)(g), the figure is 120%;
• no appeal was filed against the assessment or reassessment order and the penalty levy.

The application is due within one month from the end of the month in which the order was received (section 440(2)). It is made in Form 161 (rule 231). The Assessing Officer decides within three months from the end of the month of receipt (section 440(5)), and cannot reject without a hearing (section 440(6)). No immunity is given if a proceeding under Chapter XXII has been initiated (section 440(4)). If an order was received on 12 August, the application is due by 30 September.

Who is liable when a company or firm commits the offence?

Section 487 treats the entity and the people running it as guilty together. For this section "company" includes a firm and an association of persons or body of individuals, and a "director" of a firm means a partner. Every person in charge of, and responsible to, the company for the conduct of its business at the time of the offence is deemed guilty (section 487(1)). That person escapes only by proving the offence happened without his knowledge or that he exercised all due diligence to prevent it (section 487(2)). A director, manager, secretary or other officer is also liable where the offence was committed with their consent or connivance, or is attributable to their neglect (section 487(3)). Where the punishment is imprisonment and fine, the company itself is punished with fine, and those individuals are proceeded against as per the Act (section 487(4)). Section 488 has a similar rule for a Hindu undivided family.

Who has to prove intention in court?

Under section 490, where an offence requires a culpable mental state, the court presumes that state exists. The accused can defend by proving the absence of it, and "proved" means beyond reasonable doubt, not merely a balance of probability (section 490(3)). Culpable mental state includes intention, motive, knowledge of a fact, or belief or reason to believe a fact (section 490(2)). So "I did not know" must be backed by records and evidence, which is why the Divya example above documents her position.

How is a prosecution tried?

Section 492 deems offences under sections 476, 478, 479, 480, 482 and 484 non-cognizable. Section 483 is not on that list. Under section 497, the Special Court tries an offence under the Chapter that is punishable with imprisonment not exceeding two years, or fine, or both, as a summons case.

What happens on a second conviction?

Section 485 applies to a person already convicted under section 476, 477, 478(1), 479, 480, 482 or 484 who is convicted again under any of them. The punishment for the second and every later offence is simple imprisonment of not less than six months and up to three years, and fine. Section 476 deals with failure to pay tax deducted at source (and certain other taxes it lists) and section 477 with failure to pay tax collected at source, and section 486 says no one is punished for those two failures if reasonable cause is proved.

Quick reference

Section	Above Rs 50 lakh	Above Rs 10 lakh, up to Rs 50 lakh	Otherwise
478(1), 478(2)	Up to 2 years, or fine, or both	Up to 6 months, or fine, or both	Fine
479	Up to 2 years, or fine, or both	Up to 6 months, or fine, or both	Fine
480	Up to 2 years, or fine, or both	Up to 6 months, or fine, or both	Fine
482	Up to 2 years, or fine, or both	Up to 6 months, or fine, or both	Fine
484	Up to 2 years, or fine, or both	Up to 6 months, or fine, or both	Fine
483	Simple imprisonment up to 2 years, and fine (no bands)
485 (repeat)	Simple imprisonment 6 months to 3 years, and fine

What are the common mistakes?

• Assuming a penalty order closes the matter. Section 478(3) keeps penalty and prosecution separate.
• Reading the bands as cumulative. Only one band applies, chosen by the amount of tax in that case.
• Missing the Form 161 window. The application is due within one month from the end of the month the order is received, and an appeal against the order defeats the conditions.
• Treating a bookkeeper's entry as harmless. Section 483 reaches the person who makes the entry, not only the taxpayer who benefits.
• Ignoring the safe harbours when a return is late. Filing under section 263(4) or 263(6) can stop section 479(1) proceedings.
• Signing a verification without checking it. Section 482 turns on what the signer knows or believes.

Where is this in the Act?

• Section 478: wilful attempt to evade tax, including the situations in 478(4)
• Section 479: failure to furnish returns of income; safe harbours in 479(2)
• Section 480: failure to furnish a return of undisclosed income for the block period
• Section 482: false statement in verification
• Section 483: falsification of books of account or documents
• Section 484: abetment of false return and related offences
• Section 485: second and subsequent offences
• Section 491: sanction and compounding
• Section 440 and rule 231 (Form 161): immunity application
• Section 263(4) and 263(6): late and updated returns

For the penalty side of non-compliance, see our guide on TDS consequences of failure, and for the search powers that often start these cases, see search and seizure under the 2025 Act.

How can a CA firm keep clients out of this territory?

Most prosecution risk starts with something small: a missed return, an unreconciled ledger, an unsigned working paper. Finexo's practice management software helps a CA firm track return due dates, assign work and keep a record of who prepared and reviewed each client file. It does not give legal advice or file anything for you.

This article explains the Income Tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax or legal advice. Prosecution turns on facts, intent and procedure, so confirm the position for a specific case with a qualified chartered accountant or tax lawyer.