Offences by Companies and HUF: Who Is Liable Under the Income Tax Act 2025

When a company commits an offence under the Income Tax Act 2025, section 487 makes the company and the people running its business deemed guilty too. When a Hindu undivided family (HUF) commits one, section 488 makes the karta deemed guilty. In both cases the person deemed guilty by default can escape by proving the offence happened without their knowledge or that they exercised all due diligence to prevent it. A separate rule for directors, managers, secretaries, officers and HUF members who consented, connived or were negligent has no such escape.

This guide explains who is covered, what the defences are, how the two sections differ, and what it means in practice for directors, partners, kartas and the CAs who advise them. It is information, not legal advice. Everything below comes from sections 487 and 488 of the Act as amended by the Finance Act, 2026 (tax year 2026-27). These sections only decide who is liable. The offences themselves and their punishments sit elsewhere in the Act and are not covered here.

What does section 487 say about offences by companies?

Section 487(1) says that if a company commits an offence under the Act, then both the company and every person who, at the time of the offence, was in charge of, and responsible to, the company for the conduct of its business are deemed guilty. They can be prosecuted and punished accordingly.

Two conditions sit in that wording. The person must be in charge of the business and also responsible to the company for its conduct. Holding a title alone, such as a name on the board, is not what the sub-section describes.

Who counts as a "company" under section 487?

Section 487(5)(a) gives an extended meaning. For this section, "company" means a body corporate and also includes:

• a firm; and
• an association of persons or a body of individuals, whether incorporated or not.

So a partnership firm is treated like a company here. The "director" of a firm is a partner, and the "director" of an association of persons or body of individuals is any member controlling its affairs (section 487(5)(b)).

Entity	Who is the "director" for section 487	Reference
Company (body corporate)	Director, manager, secretary or other officer	487(3)
Firm	A partner in the firm	487(5)(b)(i)
Association of persons / body of individuals	Any member controlling its affairs	487(5)(b)(ii)

How can a person escape liability under section 487?

Section 487(2) gives a defence to the person in charge. Section 487(1) does not apply if that person proves either of these:

1. the offence was committed without their knowledge; or
2. they exercised all due diligence to prevent the offence.

The word "proves" matters. The burden is on the person to show it, not on the department to disprove it. Records such as board minutes, written instructions to the accounts team, and internal checklists are the kind of material that supports a due diligence claim.

Can a director be liable even without being "in charge"?

Yes. Section 487(3) applies irrespective of sub-sections (1) and (2). If an offence by a company is proved to have been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer, that person is also deemed guilty and can be proceeded against.

Two points follow. First, the "no knowledge" and "due diligence" defences in sub-section (2) are written for sub-section (1) and do not carry over to sub-section (3). Second, neglect is enough. Active participation is not required.

What if the punishment is imprisonment and fine?

Section 487(4) deals with this. Where the punishment for the offence is imprisonment and fine, the company is punished with fine, since a company cannot be jailed. The persons covered by sub-section (1) or sub-section (3) are liable to be proceeded against and punished as per the provisions of the Act.

What does section 488 say about offences by an HUF?

Section 488 follows a similar pattern with one key difference: the HUF has a single head.

• 488(1): if an HUF commits an offence, the karta is deemed guilty and can be proceeded against and punished.
• 488(2): the karta is not liable to any punishment if they prove the offence was committed without their knowledge or that they exercised all due diligence to prevent it.
• 488(3): irrespective of (1) and (2), any member of the HUF is also deemed guilty if the offence is proved to have been committed with their consent or connivance, or is attributable to any neglect on their part.

Does the court presume a guilty mind in these cases?

For offences that need a "culpable mental state", yes. Under section 490(1), in a prosecution for any offence under the Act that requires such a state of mind, the court presumes it exists, and the accused can defend by proving they did not have it. Section 490(2) says the expression includes intention, motive, knowledge of a fact, or belief or reason to believe a fact.

Section 490(3) sets the standard for this section: a fact is "proved" only when the court believes it exists beyond reasonable doubt, not merely on a preponderance of probability. Read this together with sections 487 and 488 when a director, partner or karta is relying on a no-knowledge defence in a prosecution. Section 490 is a separate provision and it does not rewrite the wording of sections 487(2) or 488(2).

Section 487 and section 488 side by side

	Company, firm, AOP/BOI (s. 487)	HUF (s. 488)
Who is deemed guilty by default	The entity, and every person in charge of and responsible for its business	The karta
Defence for that person	No knowledge, or all due diligence (487(2))	No knowledge, or all due diligence (488(2))
Others who can be caught	Any director, manager, secretary or other officer, on consent, connivance or neglect (487(3))	Any member of the HUF, on consent, connivance or neglect (488(3))
Imprisonment and fine	Company punished with fine; persons proceeded against as per the Act (487(4))	No separate sub-section

How does liability flow? A quick decision tree

Real-life examples

Example 1: the finance head who never saw the notice

Meena is the finance head of a private company and signs off its tax filings. An offence is committed under the Act in tax year 2026-27 because a junior employee acted against written company instructions that Meena had issued and followed up on. Under section 487(1) Meena is in charge of the business and prima facie deemed guilty. To use section 487(2), she must prove due diligence, for instance with the written instructions, review emails and checklists. If she can, section 487(1) does not apply to her.

Example 2: the director who ignored the red flags

Ravi is a non-executive director of the same kind of company. He does not run day-to-day operations, but board papers repeatedly flagged a compliance problem and he took no action. If the offence is proved to be attributable to his neglect, section 487(3) deems him guilty regardless of sub-sections (1) and (2). The sub-section (2) defences are not available against it.

Example 3: a partner in a firm

Anil and Kavita run a partnership firm. Kavita handles all accounts, Anil is a sleeping partner. An offence is committed by the firm. Because the firm counts as a "company" and a partner counts as its "director" under section 487(5), both partners can be looked at. Kavita, who controls the accounts, is the obvious person under sub-section (1). Anil can be reached under sub-section (3) only if consent, connivance or neglect on his part is proved.

Example 4: the karta of an HUF

Suresh is the karta of an HUF with business income. The HUF commits an offence under the Act while Suresh was abroad and the accounts were handled by his son Dev, a member of the HUF. Under section 488(1) Suresh is deemed guilty, but under 488(2) he escapes if he proves the offence occurred without his knowledge or that he exercised all due diligence. Dev can be deemed guilty under 488(3) if the offence is proved to be with his consent or connivance or attributable to his neglect.

Common mistakes

• Assuming "firm" is outside section 487. Section 487(5)(a) expressly treats a firm, and an AOP or BOI, as a company for this section.
• Assuming the due diligence defence covers every director. Section 487(2) answers sub-section (1). Section 487(3) applies irrespective of it.
• Assuming a non-executive title is protection. Neglect under 487(3) can reach any director, manager, secretary or officer.
• Keeping no evidence. The defence requires the person to prove their case, so undocumented diligence is hard to establish.
• Forgetting HUF members. Section 488(3) can reach members other than the karta.

Quick reference

Provision	What it does
Section 487(1)	Company and persons in charge of and responsible for its business are deemed guilty
Section 487(2)	Defence: no knowledge or all due diligence, to be proved
Section 487(3)	Directors, managers, secretaries, officers liable on consent, connivance or neglect
Section 487(4)	Imprisonment and fine: company punished with fine
Section 487(5)	Defines "company" (includes firm, AOP, BOI) and "director"
Section 488(1)	Karta of an HUF is deemed guilty
Section 488(2)	Karta's defence: no knowledge or all due diligence
Section 488(3)	Any HUF member liable on consent, connivance or neglect

What should CAs and finance teams do about it?

Since due diligence has to be proved, keep a paper trail: written compliance calendars, sign-off records, and escalation emails. For a CA firm, that means tracking which client entities have which obligations and who is responsible for each. Finexo's practice management software keeps task owners, due dates and client records in one place, which helps build that trail. It does not give legal advice or decide liability. For a related compliance topic, see TDS on rent under the Income Tax Act 2025.

Where this is in the Act

• Section 487: Offences by companies (sub-sections (1) to (5))
• Section 488: Offences by Hindu undivided family (sub-sections (1) to (3))
• Section 490: Presumption as to culpable mental state (sub-sections (1) to (3))

Sections 487 and 488 do not cross-refer to other sections or rules. The offences themselves and the prescribed punishments are found elsewhere in the Act and are not covered in this article.