Section 487 · Offences
Section 487 of the Income-tax Act, 2025 — Offences by Companies: Liability of Directors and Principal Officers
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXII
📜 What the law says — Section 487, Income-tax Act 2025
487. (1) If an offence under this Act has been committed by a company, every
person who, at the time the offence was committed, was in charge of, and
was responsible to, the company for the conduct of the business of the company as
well as the company shall be deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly.
(2) The provisions of sub-section (1) shall not apply if the person referred therein
proves that the offence was committed without his knowledge or that he had exer-
cised all due diligence to prevent the commission of such offence.
(3) Irrespective of anything contained in sub-sections (1) and (2), where an offence
under this Act has been committed by a company and it is proved that the offence
has been committed with the consent or connivance of, or is attributable to any ne-
glect on the part of, any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be deemed to be guilty
of that offence and shall be liable to be proceeded against and punished accordingly.
(4) If an offence under this Act has been committed by a company and the
punishment for such offence is imprisonment and fine, then, without prejudice to
the provisions contained in sub-section (1) or (3), such company shall be punished
with fine and every person referred to in sub-section (1), or the director, manager,
secretary or other officer of the company referred to in sub-section (3), shall be liable
to be proceeded against and punished as per the provisions of this Act.
(5) For the purposes of this section,—
(a) “company” means a body corporate and includes—
(i) a firm; and
(ii) an association of persons or a body of individuals, whether incor-
porated or not; and
(b) “director”, in relation to—
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any
member controlling the affairs thereof.
30. Substituted for “rigorous imprisonment for a term which shall not be less than six months
but which may extend to seven years, and with fine” by the Finance Act, 2026, w.e.f. 1-4-2026.
Offences by Hindu undivided family.
In plain language
What Section 487 actually says
A company is a legal person, but it can only act through the human beings who run it. So when a company commits an offence under the Income-tax Act, 2025 — such as wilful attempt to evade tax, failure to deposit TDS/TCS, or filing a false statement — the law needs a way to punish the real people behind the wrongdoing, not just an abstract entity. Section 487 (Chapter XXII, Offences and Prosecution; effective 1 April 2026) does exactly this. It is the re-enacted version of the well-known Section 278B of the Income-tax Act, 1961, and the wording is substantially the same.
Who is caught by this section
- The company itself — it remains liable and is prosecuted for the offence.
- Persons "in charge of and responsible to" the company for the conduct of its business at the time the offence was committed (sub-section 1). This is the "principal officer"/management test — typically whole-time and managing directors, and others who actually run day-to-day operations.
- Any director, manager, secretary or other officer where the offence was committed with their consent, connivance, or is attributable to their neglect (sub-section 3) — even if they were not in day-to-day charge.
The two routes to personal liability
- Route 1 — sub-section (1): automatic deeming. Everyone in charge of the business is deemed guilty automatically, without the department having to prove personal involvement. The burden then shifts to the individual to escape.
- Route 2 — sub-section (3): proven fault. Any officer (whether or not in day-to-day charge) can be roped in if the department proves consent, connivance, or neglect. This can reach non-executive or specific officers who were not covered by Route 1.
The escape route (sub-section 2)
Sub-section (1) liability is not absolute. A person is not liable if he proves either:
- the offence was committed without his knowledge; or
- he had exercised all due diligence to prevent the offence.
The burden of proof is on the individual. Importantly, this defence is available only against sub-section (1). It does not help where sub-section (3) applies, because there the very foundation is your consent, connivance or neglect.
How punishment is applied (sub-section 4)
Many tax offences carry imprisonment and fine. Since a company cannot be jailed, sub-section (4) clarifies that the company is punished with fine, while the responsible individuals under sub-section (1) or (3) face prosecution and punishment (which can include imprisonment) as prescribed for that offence.
Wide meaning of "company" (sub-section 5)
For this section, "company" is far wider than a Companies Act company. It includes a body corporate, and also a firm and an association of persons (AOP) or body of individuals (BOI), whether incorporated or not. Correspondingly, "director" means a partner in the case of a firm, and a member controlling its affairs in the case of an AOP/BOI. So partners of a firm and controlling members of an AOP are exposed exactly like directors of a company.
Practical implications
- Board-level risk: Signing tax returns, TDS statements, or being designated the "principal officer" carries real criminal exposure, not just civil penalty.
- Document your diligence: Board minutes, delegation of tax functions, internal controls and evidence of oversight are what let a director invoke the sub-section (2) defence.
- Sanction still required: Prosecution under the Act generally needs sanction of the competent income-tax authority, and many offences require a culpable mental state (mens rea), which the Act presumes and the accused must rebut.
💡 Example
Worked example 1 — TDS default by a company. ABC Traders Pvt. Ltd. deducted TDS of ₹8,00,000 from vendor and salary payments during FY 2026-27 but did not deposit it with the government. Failure to pay TDS is a prosecutable offence. Under Section 487(1), both the company and its managing director Mr. Sharma (who was in charge of the business) are deemed guilty. The company faces a fine; Mr. Sharma faces prosecution and possible imprisonment plus fine. If the accounts manager acted on Mr. Sharma's explicit instruction to divert the ₹8,00,000, that officer can additionally be roped in under Section 487(3) for "consent or connivance."
Worked example 2 — the diligent director walks free. Ms. Rao is a non-executive director of the same company. The TDS function was fully delegated to a qualified CFO, board minutes show she repeatedly asked for compliance confirmations, and she had no knowledge of the default. Under Section 487(2) she can prove the offence happened "without her knowledge" and that she exercised "all due diligence" — so she escapes liability, even though she is a director.
A relatable story. Think of a company like a car. If the car jumps a red light, the traffic police don't book the car — they book the driver who was actually holding the wheel. Section 487 says: for a tax offence, the person "at the wheel" of the business (the principal officer/managing director) is presumed responsible, but a passenger director who genuinely had no control and had done everything reasonable can show she wasn't driving — and step out of the case.
| Sub-section | Who it targets | Trigger / test | Burden of proof |
|---|
| 487(1) | Company + persons in charge of and responsible for the business | Automatic deeming when company commits the offence | On the accused to rebut (via 487(2)) |
| 487(2) | Person accused under 487(1) | Escape if no knowledge OR all due diligence exercised | On the individual to prove the defence |
| 487(3) | Any director, manager, secretary or other officer | Consent, connivance, or neglect on their part | On the department to prove fault |
| 487(4) | Company vs individuals | Offence punishable with imprisonment + fine | Company: fine only; individuals: imprisonment + fine |
| 487(5) | Defines "company" & "director" | Includes firm, AOP/BOI; partner/controlling member = director | — |
Related sections
Income-tax Act, 1961 — Offences by companies (the predecessor provision) Wilful attempt to evade tax, penalty or interest Failure to pay tax deducted at source (TDS) to the Government Failure to pay tax collected at source (TCS) Offences by Hindu Undivided Families (liability of karta/members) Presumption of culpable mental state in prosecutions
Frequently asked questions
Can a director go to jail for a company's tax offence under Section 487?
Yes. While the company itself can only be fined, an individual who was in charge of the business (sub-section 1) or who acted with consent, connivance or neglect (sub-section 3) can be prosecuted and, for offences punishable with imprisonment, can face a jail term plus fine.
I am a non-executive or independent director — am I automatically liable?
Not automatically. Sub-section (1) targets those actually in charge of the business. If you were not running day-to-day operations, you can invoke the sub-section (2) defence by proving no knowledge or all due diligence, unless the department proves your consent, connivance or neglect under sub-section (3).
What is the difference between sub-section (1) and sub-section (3)?
Sub-section (1) deems all persons in charge of the business guilty automatically, shifting the burden to them. Sub-section (3) is fault-based — it catches any director or officer, whether or not in day-to-day charge, but only if the department proves consent, connivance or neglect.
How do I defend myself as a director?
Under sub-section (2), prove either that the offence was committed without your knowledge or that you exercised all due diligence to prevent it. Board minutes, documented delegation of the tax function, and evidence of oversight are key. Note this defence does not cover sub-section (3) situations.
Does Section 487 apply to partnership firms and AOPs?
Yes. Sub-section (5) defines 'company' widely to include a firm and an association of persons or body of individuals. For a firm a 'director' means a partner, and for an AOP/BOI it means a member controlling its affairs — so partners and controlling members carry the same exposure.
Is Section 487 new, or did it exist before?
It is essentially a re-enactment of Section 278B of the Income-tax Act, 1961, with substantially the same language, carried into the Income-tax Act, 2025 which takes effect from 1 April 2026.
Can both the company and its directors be prosecuted for the same offence?
Yes. The company and the responsible individuals are proceeded against together. The company pays a fine while the individuals face prosecution and punishment (including possible imprisonment) as prescribed for that offence under sub-section (4).
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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