Special Courts for Tax Offences: How Prosecution Trials Work (Income-tax Act, 2025)

Under the Income-tax Act, 2025, tax offences are tried by a Special Court: a court of a Judicial Magistrate of the first class that the Central Government designates by notification, in consultation with the Chief Justice of the High Court (section 495). Once a Special Court is designated for an area, offences in the Chapter on offences and prosecution are triable only by it (section 496). Offences punishable with imprisonment of up to two years, or fine, or both, are tried as a summons case (section 497).

This guide covers sections 495 to 498 in plain language: how a Special Court is set up, what it can try, how a case starts, how the trial runs, and who prosecutes. It is information, not legal advice. The text is the Act as amended by the Finance Act, 2026, last reviewed on 10 November 2026. For the offences themselves, see our guide to income tax offences and prosecution.

What is a Special Court under the Income-tax Act, 2025?

A Special Court is not a new kind of court built from scratch. Section 495(1) lets the Central Government pick one or more existing courts of Judicial Magistrate of the first class and designate them as Special Courts. The notification can say:

• the area or areas the court covers; or
• the cases, or class or group of cases it will hear.

The Central Government must consult the Chief Justice of the High Court before designating. Section 495(2) explains which High Court that is: the High Court of the State in which the Judicial Magistrate was functioning immediately before the designation.

Which offences can a Special Court try?

Section 495(1) refers to offences "punishable under this Chapter", the Chapter on offences and prosecution. Section 496(1)(a) then says these offences are triable only by the Special Court, if one has been designated, for the area or the class of cases in which the offence was committed. This applies even if the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) says otherwise.

Section 495(3) adds a convenience. While trying a tax offence, the Special Court can also try any other offence the accused may be charged with at the same trial under the BNSS. The accused does not face two separate trials in two courts for the same set of facts.

How does a case reach a Special Court?

Section 496(1)(b) lets a Special Court take cognizance (formally start hearing the case) on a complaint made by an authority authorised under the Act. The Act names a complaint by an authorised authority as the route, not a police report. Separately, section 491(1) says that for offences under sections 473 to 484, nobody can be proceeded against without the previous sanction of the Principal Commissioner, Commissioner, Commissioner (Appeals) or Joint Commissioner (Appeals). Section 492 deems offences under sections 476, 478, 479, 480, 482 and 484 to be non-cognizable under the BNSS.

What if no Special Court has been designated for the area?

Section 520 says no court inferior to a Judicial Magistrate of the first class can try any offence under the Act. Section 496(2) handles the changeover for offences under that section:

Court that was trying the offence	What happens after designation	Reference
A court that has been designated a Special Court	Continues to try the offences before it, and offences arising under the Act after designation	496(2)(a)
A competent court that has not been designated	May continue to try the offence already pending before it until disposal	496(2)(b)

In short, pending cases do not have to be transferred mid-way.

What is a summons case, and which tax offences fall in it?

Under the BNSS, a summons case is the simpler trial track. Section 497 says the Special Court must try an offence under the Chapter as a summons case when the offence is punishable with imprisonment not exceeding two years, or with fine, or with both. The summons-case provisions of the BNSS then apply.

After the Finance Act, 2026, the main punishments in sections 477 to 484 follow a three-step pattern. Sections 477, 478, 479, 480, 482 and 484 each have:

Amount of tax involved	Punishment
Exceeds Rs 50 lakh	Simple imprisonment up to 2 years, or fine, or both
Exceeds Rs 10 lakh, up to Rs 50 lakh	Simple imprisonment up to 6 months, or fine, or both
Any other case	Fine

Section 481 (not complying with a special audit or valuation direction) carries simple imprisonment up to six months, or fine, or both. Section 483 (falsifying books to help another person evade tax) carries simple imprisonment up to two years and fine. The sections I checked, 477 to 484, all top out at two years, so they fit inside section 497. The wording of the amount differs by section: it can be the tax collected and not paid, the tax or amount sought to be evaded, or the tax that would have been evaded. Check the exact section.

Do the usual criminal procedure rules and bail apply?

Yes. Section 498(1) says that, unless the Income-tax Act provides otherwise, the BNSS applies to proceedings before a Special Court, including the provisions on bails and bonds. The Special Court is not a separate code of procedure. It is an ordinary criminal court with a tax-only docket, using the BNSS as the baseline.

Who prosecutes in a Special Court?

Point	Rule	Reference
Person conducting the prosecution	Deemed to be a Public Prosecutor	498(1)
Special Public Prosecutor	Central Government may appoint one for any case or class or group of cases	498(2)
Qualification	Advocate in practice for not less than seven years, requiring special knowledge of law	498(3)
Legal status	Deemed a Public Prosecutor under section 2(1)(v) of the BNSS; that Sanhita applies accordingly	498(4)

Worked example 1: which punishment tier and which trial track?

Assume tax year 2026-27 and a person charged with a wilful attempt to evade payment under section 478(2). The amount sought to be evaded is the total of tax, penalty and interest.

Step	Working	Rs lakh
1. Tax sought to be evaded	Given	32
2. Penalty sought to be evaded	Given	16
3. Interest sought to be evaded	Given	4
4. Total amount sought to be evaded	32 + 16 + 4	52
5. Tier	52 exceeds 50, so section 478(2)(a)	Up to 2 years, fine, or both
6. Trial track	Maximum is 2 years, which does not exceed two, so section 497	Summons case

If the total had been Rs 48 lakh, step 5 would give section 478(2)(b), with imprisonment up to six months, or fine, or both. The trial track would still be a summons case.

Worked example 2: tax collected at source but not deposited

Section 477 covers a person who collects tax but fails to pay it to the government as section 397(3)(a) requires. Assume a trader collected Rs 12 lakh as TCS during tax year 2026-27.

1. Rs 12 lakh exceeds Rs 10 lakh but does not exceed Rs 50 lakh, so the relevant tier is section 477(1)(b): simple imprisonment up to six months, or fine, or both.
2. Section 477(2) says the section does not apply if the TCS was paid to the government on or before the time prescribed for filing the statement under section 397(3)(b).
3. So if the trader deposits the Rs 12 lakh by that date, there is no offence under section 477. If the deposit is later, the exposure above applies, and any prosecution needs the sanction under section 491(1) and a complaint under section 496(1)(b).

Real-life example 1: Ravi and the pending case

Ravi, a trader, was already facing a prosecution in the Magistrate's court when the Central Government notified a Special Court for his district. His case was pending before a competent court that had not been designated. Under section 496(2)(b) that court may keep trying the case until it is disposed of. A new complaint filed against a different trader after the notification would go to the Special Court.

Real-life example 2: Meena and the second charge

Meena is prosecuted under the Act for a false statement in a verification (section 482). The facts also support a separate charge under the BNSS arising from the same incident. Section 495(3) lets the Special Court try that other charge at the same trial, so Meena answers both in one court.

Can a tax offence be compounded, and how is evidence proved?

Section 491(4) allows any offence under the Chapter to be compounded (settled without a trial verdict), before or after proceedings begin, by the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General. Under section 491(3), a person cannot be prosecuted under section 478 or 482 for a tax year where the section 439 penalty was reduced or waived by an order under section 469. Section 491(5) says statements and documents given to income-tax authorities are not inadmissible merely because they were given in the belief that the penalty would be reduced or waived, or the offence compounded.

On evidence, section 493 admits entries in records held by an income-tax authority in a prosecution. They can be proved by producing the record itself, or a copy certified under the authority's signature as a true copy of the original entries.

Common mistakes

• Assuming any Magistrate can try the case. Where a Special Court is designated for the area or class of cases, section 496(1)(a) makes it the only court for these offences.
• Treating the Special Court as outside the BNSS. Section 498(1) applies the BNSS, including bail and bonds, unless the Act says otherwise.
• Mixing up the Rs 10 lakh and Rs 50 lakh bands. The bands apply to the tax or amount named in each section, and the wording differs from section to section.
• Forgetting the sanction step. Section 491(1) requires previous sanction for offences under sections 473 to 484.
• Reading old punishment text. The Finance Act, 2026 replaced rigorous imprisonment with simple imprisonment and changed the bands in several sections, with effect from 1 April 2026.

Quick reference

Question	Answer	Section
Who designates a Special Court?	Central Government, in consultation with the Chief Justice of the High Court	495(1)
What kind of court?	Judicial Magistrate of the first class	495(1)
Who can try these offences?	Only the designated Special Court, once designated	496(1)(a)
What starts the case?	Complaint by an authorised authority	496(1)(b)
Trial track for up to 2 years or fine	Summons case	497
Bail and procedure	BNSS applies	498(1)
Prosecutor qualification	Advocate for at least 7 years	498(3)

Where this is in the Act

• Section 495: Special Courts (designation, High Court, trial of linked offences).
• Section 496: offences triable by Special Court; cognizance on complaint; transition of pending cases.
• Section 497: trial of offences as summons case.
• Section 498: BNSS applies to Special Court proceedings; Public Prosecutor and Special Public Prosecutor.
• Related: sections 477 to 484 (offences), 491 (sanction, compounding), 492 (non-cognizable), 493 (proof of entries), 520 (court competent to try).

For a CA firm, the practical work is tracking notices, hearing dates and client deadlines so a compliance gap does not grow into a prosecution. Finexo's practice management software keeps client deadlines and notice follow-ups in one place. It does not give legal advice or appear in court. For a related deadline-driven topic, see TDS on rent under the Income-tax Act, 2025.