Income-tax law / Offences and prosecutions
Section 276B of the Income-tax Act, 1961: Failure to Deposit TDS and the Finance Act, 2026 Changes
Section 276B concerns failure to pay specified tax amounts to the credit of the Central Government. The Finance Act, 2026 substantially revised this prosecution provision, deemed effective from 1 March 2026. Its new punishment structure differs sharply from the older text reproduced in many references.
What does Section 276B cover?
Under the substituted section 276B, prosecution may arise where a person fails to:
- Deposit tax deducted at source (TDS): pay to the Central Government tax deducted as required under Chapter XVII-B of the Income-tax Act, 1961.
- Meet specified payment or assurance obligations: pay tax or ensure its payment under the proviso to section 194S(1) concerning consideration for transfer of a virtual digital asset (excluding consideration wholly in kind), or section 194BA(2) concerning winnings (excluding winnings wholly in kind).
Chapter XVII-B contains the statutory provisions governing deduction of income tax at source. Section 194S deals with deduction of tax on payments for transfers of virtual digital assets. Section 194BA addresses tax deduction on net winnings from online games. Whether a particular transaction falls within the substituted provision depends on its statutory conditions and the relevant period.
Punishment under Section 276B after the Finance Act, 2026
| Amount of tax involved | Maximum statutory punishment |
|---|---|
| Exceeds Rs. 50 lakh | Simple imprisonment up to 2 years, or fine, or both |
| Exceeds Rs. 10 lakh but does not exceed Rs. 50 lakh | Simple imprisonment up to 6 months, or fine, or both |
| Rs. 10 lakh or less | Fine |
These are the punishment bands in the substituted provision, not an automatic sentence. Criminal liability, the applicable amount and any statutory defences or relief must be evaluated on the evidence and law governing the case. The earlier mandatory minimum imprisonment is not part of the substituted wording.
Important proviso: payment by the TDS statement deadline
The substituted section provides that it does not apply to a failure under clause (a) if the tax deducted has been credited to the Central Government on or before the prescribed time for filing the statement under section 200(3). This is a specific statutory exclusion linked to the TDS statement filing deadline; it is not a general exemption from interest, fees, other consequences or separate statutory obligations.
For practical compliance, retain challans, bank payment acknowledgments, deduction records and the relevant TDS statement due-date evidence. Check the applicable prescribed filing deadline for the particular period.
Earlier version and legislative history
The earlier section 276B imposed rigorous imprisonment of at least three months and up to seven years, with fine. Its scope had been amended over time to refer to Chapter XVII-B and payment obligations involving sections 115-O, 194B, 194R, 194S and 194BA. The Finance Act, 2026 substituted section 276B with retrospective effect from 1 March 2026, narrowed the specified clause (b) obligations, and replaced the punishment structure.
Historically, section 276B was introduced by the Finance Act, 1968, and was amended or substituted by later Finance Acts, including amendments in 1975, 1986, 1997 and 2023. Earlier wording is relevant only when examining its operation for the applicable period and any governing transitional provisions.
Income-tax Act, 2025 and saved proceedings
The Income-tax Act, 2025 took effect on 1 April 2026. Section 536 repeals the 1961 Act while preserving specified prior operations, liabilities and proceedings. Accordingly, a 1961 Act prosecution question cannot be answered solely by looking at the current tax-year law; the date of conduct, the 2026 substitution, any savings provisions and the law applicable to the proceeding are material.
Related legal provisions
- Section 200(3): prescribed statements for tax deducted at source.
- Section 194S: tax deduction on consideration for transfer of virtual digital assets.
- Section 194BA: tax deduction relating to online gaming winnings.
- Section 276BB: separate offence concerning tax collected at source.
- Section 278AA: reasonable-cause protection for specified prosecution offences, subject to its statutory scope and conditions.
- Section 279: provisions relating to prosecution and compounding, subject to applicable law and administrative guidelines.
Frequently asked questions
Is imprisonment compulsory under the revised Section 276B?
No. The substituted provision prescribes fine-only punishment for tax amounts up to Rs. 10 lakh, and permits imprisonment, fine or both in the higher bands.
Does paying deducted TDS late always trigger Section 276B?
No. The substituted section contains a specific exclusion when clause (a) tax is paid by the prescribed deadline for the statement under section 200(3). Other tax consequences may still apply.
When did the new punishment provisions take effect?
The Finance Act, 2026 provides for the substituted section 276B to be deemed effective from 1 March 2026.
Does the Income-tax Act, 1961 still matter after April 2026?
Yes. The Income-tax Act, 2025 repealed it from 1 April 2026, but section 536 contains extensive savings for prior liabilities and proceedings.
Official statutory sources
- Finance Act, 2026 - Section 26 (substitution of section 276B)
- Income Tax Department - Section 276B historical text
- Income-tax Act, 1961 (2024 consolidated text, historical reference)
- Income Tax Department - Income-tax Act, 2025 and transition guidance
- Official Income-tax Act, 2025 (section 536)
This article is general legal information. The precise statute, version and prosecution consequences depend on the period, facts, notifications and applicable savings provisions.