Section 478 · Offences
Section 478 of the Income-tax Act, 2025 — Wilful Attempt to Evade Tax, Penalty or Interest
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXII
📜 What the law says — Section 478, Income-tax Act 2025
478. 24[(1) If a person wilfully attempts in any manner to evade any tax, penalty or
interest chargeable or imposable, or under-reports his income, under this Act,
he shall be punishable—
(a) with simple imprisonment for a term up to two years, or with fine, or with
both, where the amount sought to be evaded or tax on under-reported
income exceeds fifty lakh rupees; or
(b) with simple imprisonment for a term up to six months, or with fine, or
with both, where the amount sought to be evaded or tax on under-reported
income exceeds ten lakh rupees but does not exceed fifty lakh rupees; or
(c) with fine, in any other case.
(2) If a person wilfully attempts in any manner to evade payment of any tax, penalty
or interest under this Act, he shall be punishable —
(a) with simple imprisonment for a term up to two years, or with fine, or with
both, where the amount sought to be evaded exceeds fifty lakh rupees; or
(b) with simple imprisonment for a term up to six months, or with fine, or
with both, where the amount sought to be evaded exceeds ten lakh rupees
but does not exceed fifty lakh rupees; or
(c) with fine, in any other case.]
(3) The punishment referred to in this section, shall be without prejudice to any
penalty that may be imposable under any other provision of this Act.
24. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to their substitution, sub-sections
(1) and (2) read as under :
“(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or
interest chargeable or imposable, or under-reports his income, under this Act, he shall be
punishable,—
(a) in a case, where the amount sought to be evaded or tax on under-reported income
exceeds twenty-five lakh rupees, with rigorous imprisonment for a term which shall
not be less than six months but which may extend to seven years, and with fine;
(b) in any other case, with rigorous imprisonment for a term which shall not be less
than three months but which may extend to two years, and with fine.
(2) If a person wilfully attempts in any manner to evade the payment of any tax, penalty
or interest under this Act, he shall be punishable with rigorous imprisonment for a term
which shall not be less than three months but which may extend to two years a
In plain language
What Section 478 is about
Section 478 of the Income-tax Act, 2025 is a prosecution (criminal) provision. It punishes a person who wilfully attempts to evade tax, penalty or interest, or who wilfully attempts to evade the payment of any tax, penalty or interest that is due under the Act. It is the 2025 Act's successor to the well-known Section 276C of the Income-tax Act, 1961.
The key word is "wilful". Section 478 does not punish honest mistakes, genuine differences of opinion on a tax position, or bona fide disputes that end up decided against you. It targets deliberate, intentional cheating — fabricating records, hiding income, or engineering a situation to escape tax.
The two limbs of the section
- Section 478(1) — evading tax/penalty/interest that is chargeable or imposable: covers attempts to make sure tax, penalty or interest is never correctly determined in the first place (e.g. suppressing income, inflating expenses, filing a false return).
- Section 478(2) — evading the payment of tax/penalty/interest: covers cases where the liability is already fixed but the person deliberately dodges paying it (e.g. secretly moving assets so recovery fails).
What counts as a "wilful attempt"
The section carries an inclusive definition. A wilful attempt includes a case where a person:
- has in his possession or control any books of account or other documents containing a false entry or statement; or
- wilfully omits (or causes to be omitted) any relevant entry or statement in such books or documents; or
- causes any other circumstance to exist which has the effect of enabling evasion of tax, penalty or interest, or its payment.
Because the definition is "inclusive", the department is not limited to these three examples — any deliberate manoeuvre aimed at escaping tax can fall within it.
Punishment after the Finance Act, 2026 (effective 1 April 2026)
This is the most important practical update. As originally enacted, Section 478 prescribed rigorous imprisonment on a two-tier basis (mirroring the old 276C: 6 months–7 years where the amount exceeded a threshold, else 3 months–2 years). The Finance Act, 2026 rationalised and softened this as part of a wider decriminalisation drive. Under the amended structure, punishment is graded by the amount sought to be evaded and shifts from mandatory rigorous imprisonment to simple imprisonment or fine or both:
- Amount exceeds ₹50 lakh: simple imprisonment up to 2 years, or fine, or both.
- Amount between ₹10 lakh and ₹50 lakh: simple imprisonment up to 6 months, or fine, or both.
- Amount below ₹10 lakh: fine only (no imprisonment).
Note of caution: the exact bracket wording is being read from the amending Finance Act, 2026; taxpayers should confirm the precise limits from the bare Act before relying on them in a live matter.
Who it applies to
Section 478 applies to any person — individuals, HUFs, firms, LLPs, and companies. For companies and firms, the persons in charge (directors, partners, principal officers) can also be prosecuted under the Act's "offences by companies" provisions unless they prove the offence happened without their knowledge or despite due diligence.
How it interacts with other provisions
- The punishment under Section 478 is in addition to, not instead of, any civil penalty imposable elsewhere in the Act (such as penalty for under-reporting or misreporting of income). Prosecution and penalty run on separate tracks.
- Prosecution generally requires prior sanction of a specified senior officer, and there is a companion provision that presumes a culpable mental state once the basic facts are shown, shifting the burden to the accused to prove absence of intent.
- It sits alongside the offence of failure to furnish a return (the 2025 successor to Section 276CC), which is a distinct offence.
Practical implications
- Keep clean books. False entries, deliberate omissions and backdated documents are exactly what triggers this section.
- A dispute is not a crime. Losing an addition in assessment does not automatically mean prosecution; the department must show wilful intent.
- Compounding is usually possible. Many such offences can be compounded (settled by paying charges) rather than fought in criminal court, subject to CBDT guidelines.
💡 Example
Worked example 1 — large evasion. Mr. Verma runs a trading business. He books ₹90 lakh of bogus purchases through shell suppliers, reducing his real profit and evading roughly ₹28 lakh of tax. The fake invoices and ledger entries are "false entries" in his books. Because the amount evaded exceeds ₹50 lakh in aggregate across years under scrutiny, he faces prosecution under Section 478(1) with simple imprisonment up to 2 years and/or fine, plus a separate civil penalty for misreporting income — on top of paying the tax and interest.
Worked example 2 — mid-range. Ms. Rao omits ₹15 lakh of professional receipts received in cash and does not record them anywhere. The tax evaded is about ₹4.5 lakh but the amount sought to be evaded (₹15 lakh of income leading to the shortfall) falls in the ₹10 lakh–₹50 lakh band, exposing her to simple imprisonment up to 6 months, or fine, or both. Had the deliberately concealed amount been small — under ₹10 lakh — she would face fine only, not jail.
A relatable story. Two neighbours both got assessment additions. Anil had genuinely, in good faith, claimed a deduction the officer later disallowed — he paid the extra tax and that was the end of it; there was no wilfulness, so Section 478 never came near him. Sunil, by contrast, had kept a second "kacha" set of books hiding cash sales and filed a return he knew was false. The department launched prosecution against Sunil under Section 478 because the intent to cheat was written into his own records. The lesson: it is not the size of the tax bill that lands you in criminal court — it is the deliberate lie.
| Amount sought to be evaded | Punishment (post Finance Act, 2026) | Nature |
|---|
| Exceeds ₹50 lakh | Simple imprisonment up to 2 years, or fine, or both | Most serious tier |
| ₹10 lakh to ₹50 lakh | Simple imprisonment up to 6 months, or fine, or both | Middle tier |
| Below ₹10 lakh | Fine only (no imprisonment) | Lowest tier |
| Original 2025 Act (pre-amendment) | Rigorous imprisonment 6 months–7 years (higher tier) / 3 months–2 years (other), with fine | Superseded from 1 Apr 2026 |
| 1961 Act equivalent (Sec 276C) | RI 6 months–7 years if evaded tax > ₹25 lakh; else RI 3 months–2 years, with fine | For reference |
Related sections
Section 276C (1961 Act) — Wilful attempt to evade tax, the predecessor of Section 478 Section 479 — Failure to furnish return of income (successor to Section 276CC) Section 480 — False statement in verification / delivering false accounts or documents Section 483 — Presumption of culpable mental state in prosecution Section 484 — Offences by companies (liability of directors and officers) Section 439 — Penalty for under-reporting and misreporting of income
Frequently asked questions
Does Section 478 apply if I simply couldn't pay my tax on time?
No. Genuine inability to pay, or a delay due to cash-flow problems, is not a 'wilful attempt' to evade. The section requires deliberate intent — such as hiding assets to defeat recovery — not mere non-payment.
Will I go to jail automatically if the assessing officer adds income to my return?
No. An addition in assessment does not by itself prove wilfulness. The department must separately establish deliberate intent to evade, obtain sanction, and launch prosecution, which the court then decides.
What is the difference between Section 478 and a penalty like under Section 439?
Section 478 is a criminal prosecution that can lead to imprisonment or fine, while Section 439 is a civil monetary penalty on the tax. Section 478 expressly allows both to be levied for the same conduct.
How did the Finance Act, 2026 change Section 478?
It replaced mandatory rigorous imprisonment with a graded structure of simple imprisonment or fine based on the amount evaded — up to 2 years above ₹50 lakh, up to 6 months for ₹10–50 lakh, and fine only below ₹10 lakh, effective 1 April 2026.
Can a Section 478 case be settled without a criminal trial?
Often yes. Many income-tax offences can be compounded under CBDT guidelines by paying compounding charges, allowing the matter to be closed without a criminal conviction, subject to eligibility conditions.
Who can be prosecuted in the case of a company?
The company itself plus every person who was in charge of and responsible to the company for its business — typically directors and principal officers — unless they prove the offence occurred without their knowledge or that they exercised due diligence.
What is the 1961 Act equivalent of Section 478?
It corresponds to Section 276C of the Income-tax Act, 1961, which similarly punished wilful attempts to evade tax, penalty or interest, and its payment.
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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