Section 477 of the Income-tax Act, 2025 — Prosecution for Failure to Pay Tax Collected at Source (TCS)

In plain language

What Section 477 actually says

Section 477 of the Income-tax Act, 2025 makes it a criminal offence for a tax collector to keep the TCS he has collected instead of depositing it with the Government. When a business collects Tax Collected at Source (TCS) from a buyer, that money never belonged to the collector — it is public money held in trust for the exchequer. Failing to pay it over is treated far more seriously than an ordinary late payment.

In plain words, if a person collects tax at source under Section 394 (the charging provision for TCS) but fails to pay that amount to the credit of the Central Government as required under Section 397(3)(a), he can be prosecuted and sent to jail — not merely charged interest or penalty.

Who Section 477 applies to

• Sellers and collectors who collect TCS on goods such as scrap, timber, minerals, tendu leaves, alcoholic liquor, motor vehicles above ₹10 lakh, overseas tour packages and foreign remittances under LRS.
• The person responsible for collecting and depositing — in a company this includes the principal officer and directors who were in charge of affairs at the relevant time.
• It does not punish the buyer from whom TCS was collected; the buyer is protected once tax is collected from him.

The punishment

Under the provision as originally enacted, the offence carried rigorous imprisonment of not less than 3 months and up to 7 years, plus a fine. This mirrored the old Section 276BB of the Income-tax Act, 1961.

Important 2026 update: The Finance Act, 2026 (effective 1 April 2026) has moved from rigid, harsh punishment to a graded, proportionate model. Broadly, the punishment is now linked to the quantum of TCS defaulted, and "rigorous" imprisonment has been softened to "simple" imprisonment. Small defaults are effectively decriminalised. See the table below for the reported tiers. Because these are recent amendments, verify the exact figures against the notified Act before relying on them.

The safe-harbour: pay before the statement due date

The single most important defence is timely deposit. Section 477 does not apply if the collected tax is paid to the Government on or before the due date for filing the quarterly TCS statement under Section 397(3)(b). In practice the quarterly statement due dates are 15 July, 15 October, 15 January and 15 May. So a short delay that is cured before the statement filing date will not attract prosecution — though interest and penalty provisions can still apply.

How it interacts with related sections

• Section 394 — creates the obligation to collect TCS and fixes rates.
• Section 397(3) — requires deposit of collected tax and filing of the quarterly statement; the deposit failure under 397(3)(a) is the trigger for 477.
• Section 476 — the mirror offence for failure to pay TDS.
• Interest and penalty run separately — prosecution under 477 is over and above interest for late deposit.

Practical implications

• Deposit collected TCS on time — always. Using it as working capital is the classic trap that converts a cash-flow problem into a criminal case.
• Prosecution needs sanction from a senior income-tax authority and is generally reserved for wilful, sizeable or repeated defaults.
• Maintain proof of challans and deposit dates; the safe-harbour is your first line of defence.
• Directors and principal officers should ensure internal controls so collected tax is ring-fenced and remitted, not spent.