Section 448 · Penalties
Section 448 of the Income-tax Act, 2025 — Penalty for Failure to Deduct Tax at Source (TDS)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXI
📜 What the law says — Section 448, Income-tax Act 2025
448. If any person fails to—
(a) deduct the whole or any part of the tax as required under Chapter XIX-B;
or
(b) pay or ensure the payment of, the whole or any part of the tax as required
by or under—
10. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, section 446
read as under :
“446. Failure to get accounts audited.—If any person fails to get his accounts audited for
any tax year or years or furnish the audit report as required under section 63, the Assessing
Officer may impose a penalty on such person, which shall be the lesser of—
(a) 0.5% of the total sales, turnover, or gross receipts in business, or the gross receipts
in profession for such tax year or years; or
(b) ` 150000.”
11. Omitted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its omission, section 447 read as
under :
“447. Penalty for failure to furnish report under section 172.—If any person fails to furnish a
report from an accountant as required by section 172, the Assessing Officer may impose a
penalty of ` 100000 on such person.”
(i) Note 2 below the Table in section 393(3); or
(ii) Note 6 to section 393(1) (Table: Sl. No. 8),
then, the Assessing Officer may impose on him, a penalty equal to the tax which
such person failed to deduct or pay or ensure payment of, as aforesaid.
Penalty for failure to collect tax at source.
In plain language
What Section 448 says in plain English
Section 448 of the Income-tax Act, 2025 imposes a penalty on any person who fails to deduct tax at source (TDS) — in whole or in part — when the law required them to. It also covers a person who fails to pay, or ensure the payment of, tax in the few situations where the Act itself casts that duty on the payer. In short: if you were supposed to deduct TDS and you did not, the penalty is a sum equal to the amount of tax you failed to deduct. This section is the direct successor to Section 271C of the old Income-tax Act, 1961 and applies from 1 April 2026.
Who does it apply to?
- Any "deductor" — employers paying salary, businesses paying rent, contractors, commission, professional fees, interest, and so on under the TDS provisions of the Act (Chapter XIX-B).
- Companies, firms, LLPs, individuals and HUFs who are liable to deduct — including individuals/HUFs whose turnover crossed the audit threshold in the preceding year.
- Persons required to pay or ensure payment of tax in the specific cases the Act flags (for example certain perquisite and non-monetary payment situations referred to in the TDS table).
How much is the penalty?
The penalty is 100% of the tax not deducted — no more, no less. If ₹50,000 of TDS should have been deducted and was not, the penalty is ₹50,000. This is a separate levy; it is over and above the tax itself and any interest.
What Section 448 does NOT cover — a crucial distinction
Section 448 penalises failure to deduct. It does not apply where tax was correctly deducted but paid to the government late. The Supreme Court (in the US Technologies line of decisions under old s.271C) held that mere late deposit of TDS already deducted does not attract this penalty. For late deposit you instead face:
- Interest under Section 398 (the successor to old s.201(1A)) — broadly 1% per month for failure to deduct and 1.5% per month for deducting but not depositing.
- Prosecution risk under the Act for wilful non-payment of deducted tax.
- Disallowance of the related expenditure under the business-income computation rules where tax is not deducted/paid.
Who imposes it and what changed procedurally
- The penalty is now levied by the Assessing Officer (AO). Under the earlier 1961 regime this power sat with the Joint Commissioner; the 2025 Act carries forward the rationalisation that shifted it to the AO, with departmental approvals required above prescribed monetary limits.
- The proceeding is a separate penalty proceeding — the person must be given a reasonable opportunity of being heard before any penalty is imposed.
The "reasonable cause" escape — Section 470
This is the taxpayer's most important protection. Under Section 470 of the 2025 Act (the successor to old Section 273B), no penalty under Section 448 shall be imposed if the person proves there was a reasonable cause for the failure. "Reasonable cause" is not defined — it is judged on the facts. Genuine, provable reasons that have historically been accepted include a bona fide belief that a payment was not liable to TDS, reliance on a lower/nil deduction certificate, or the payee having already paid the tax on that income.
Practical implications for deductors
- Deduct on time, at the correct rate — the safest position is full and timely deduction; the penalty risk is on the failure to deduct, not the paperwork alone.
- Keep evidence of your reasoning — nil/lower deduction certificates, PAN details, and payee declarations build a reasonable-cause defence.
- Where the payee has already paid tax, you may escape the tax demand under the deemed-compliance rule, but interest can still apply and you should document it.
- Late deposit is a different problem — pay interest under Section 398 quickly rather than assuming Section 448 applies.
💡 Example
Worked example 1 — rent without TDS. A private limited company pays office rent of ₹6,00,000 in the year and was required to deduct TDS at 10%, i.e. ₹60,000, but deducted nothing. Under Section 448 the Assessing Officer can levy a penalty of ₹60,000 (100% of the tax not deducted). On top of this, interest at roughly 1% per month runs under Section 398 until the tax is regularised, and the rent expense may be partly disallowed for that year.
Worked example 2 — deducted but deposited late. A firm deducts ₹40,000 TDS on a contractor payment in April but deposits it with the government only in September. Here tax was deducted, so Section 448 does not apply. Instead the firm pays interest under Section 398 at about 1.5% per month on ₹40,000 for the delay — roughly ₹40,000 × 1.5% × 5 months ≈ ₹3,000 — with no 100% penalty.
A short story. Meera runs a growing design studio and hires a freelance developer for ₹2,00,000, honestly believing no TDS applied because "he's just a freelancer." She deducts nothing. A year later the AO issues a Section 448 notice proposing a ₹20,000 penalty (10% of ₹2,00,000). Meera panics — but her CA points to Section 470: she produces the developer's income-tax return showing he had already offered and paid tax on that ₹2,00,000, plus her email trail showing a genuine (if mistaken) belief. Accepting the reasonable cause, the AO drops the penalty, though Meera still had to clear the interest. The lesson: good records turn a scary penalty into a manageable one.
| Aspect | Section 448 (Act, 2025) | What it means for you |
|---|
| Old-law equivalent | Section 271C, Act 1961 | Same concept, renumbered |
| Effective from | 1 April 2026 | Applies to FY 2026-27 onward |
| Trigger | Failure to deduct TDS (whole or part) | Non-deduction, not late deposit |
| Penalty amount | 100% of tax not deducted | ₹50,000 short = ₹50,000 penalty |
| Imposed by | Assessing Officer | Separate penalty proceeding, hearing given |
| Late deposit of deducted TDS | NOT covered by s.448 | Interest under Section 398 instead |
| Interest for default | Section 398 (approx 1% / 1.5% p.m.) | Runs separately from penalty |
| Relief / defence | Section 470 — reasonable cause | No penalty if genuine cause proven |
Related sections
Section 398 — Interest for failure to deduct or pay TDS Section 470 — No penalty where reasonable cause is proved Section 449 — Penalty for failure to collect tax at source (TCS) Section 271H equivalent — Penalty for failure to furnish TDS/TCS statements Chapter XIX-B — Deduction and collection of tax at source Section 393 — TDS rates table and payment obligations
Frequently asked questions
Is the penalty under Section 448 the same as interest for late TDS payment?
No. Section 448 is a penalty equal to 100% of the tax you failed to deduct. Interest for delayed deduction or delayed deposit is charged separately under Section 398 and can apply even when no Section 448 penalty is levied.
I deducted the TDS but paid it to the government late. Will Section 448 penalise me?
No. Section 448 applies only to failure to deduct. If tax was deducted and merely deposited late, the Supreme Court has held this penalty does not apply; you pay interest under Section 398 instead.
How much is the penalty under Section 448?
It is a sum equal to the amount of tax you failed to deduct. If you should have deducted ₹50,000 and deducted nothing, the penalty is ₹50,000.
Can I avoid the penalty if I had a genuine reason for not deducting?
Yes. Under Section 470 (successor to old Section 273B), no penalty is imposed if you prove a reasonable cause for the failure, such as a bona fide belief or reliance on a valid lower/nil deduction certificate.
Who imposes the Section 448 penalty?
The Assessing Officer imposes it in a separate penalty proceeding, after giving you a reasonable opportunity of being heard. Departmental approval is needed above prescribed monetary limits.
If the payee has already paid tax on that income, do I still face the penalty?
The fact that the payee has paid tax is strong support for a reasonable-cause defence under Section 470 and may relieve you of the tax demand, but interest can still apply, so keep the payee's return and tax-payment proof on record.
Which old section does Section 448 replace?
It replaces Section 271C of the Income-tax Act, 1961, carrying forward the same principle of penalising failure to deduct TDS, effective from 1 April 2026.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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