Section 476: failure to pay deducted tax to the government

Introduction

Section 476 concerns failure to credit deducted tax, or specified online-game or virtual-digital-asset tax, to the Central Government. The Finance Act, 2026 introduced amount-based punishment tiers and a stated on-time-statement exception for tax deducted at source.

Key takeaways

What the section covers

The offence applies where a person fails to:

• Pay to the credit of the Central Government the tax deducted at source by them, as required under Chapter XIX-B; or
• Pay or ensure payment of tax to the credit of the Central Government in respect of income by way of winnings from online games (referred to in Section 393(3), Table Sl. No. 2), excluding winnings wholly in kind; or
• Pay or ensure payment of tax on a sum paid as consideration for transfer of a virtual digital asset (referred to in Section 393(1), Table Sl. No. 8(vi)), excluding consideration wholly in kind.

The punishment, tiered by amount

Under the current text (substituted by the Finance Act, 2026, effective 1 April 2026):

An important carve-out

This section does not apply if the deducted tax has been paid to the credit of the Central Government on or before the time prescribed for filing the TDS statement under Section 397(3)(b) for that payment - in other words, if you're late in filing the statement but the money was actually deposited in time, this offence provision doesn't apply.

Before the Finance Act, 2026 amendment, the punishment was rigorous imprisonment for a term of not less than three months, extendable to seven years, with fine, applying uniformly regardless of the amount involved - the current tiered, generally lighter structure is a significant change from that.

Step-by-step flow for applying Section 476

1. 1

   Which limb of Section 476(1) is involved?

   Clause (a): tax deducted at source under Chapter XIX-B not paid to the credit of the Central Government. Clause (b)(A): tax on online-game winnings under section 393(3) [Table: Sl. No. 2], other than winnings wholly in kind. Clause (b)(B): tax on consideration for transfer of a virtual digital asset under section 393(1) [Table: Sl. No. 8(vi)], other than consideration wholly in kind.

   • None of them: Section 476 does not apply.
   • One of them: Go to the next step.
2. 2

   For clause (a), was the deducted tax paid on or before the time prescribed for filing the statement under section 397(3)(b) for that payment?

   The Section 476(2) exception is written only for clause (a). The time itself is prescribed; Section 476 does not state it.

   • Yes (clause (a) case): Section 476 does not apply to that payment.
   • No, or it is a clause (b) case: Go to the next step.
3. 3

   Can the person prove reasonable cause for the failure?

   Under Section 486, no person is punishable for a failure referred to in Section 476 if he proves reasonable cause. The burden is on the person.

   • Yes, proved: Not punishable under Section 476.
   • No: Go to the next step.
4. 4

   What is the amount of such tax?

   Above ₹50 lakh: simple imprisonment up to two years, or fine, or both. Above ₹10 lakh but not above ₹50 lakh: simple imprisonment up to six months, or fine, or both. Any other case: fine only. The Act does not state the amount of the fine here.

5. 5

   Who else may be proceeded against?

   If the person is a company (including a firm or AOP/BOI under Section 487(5)), check Section 487 for persons in charge and officers; for an HUF, check Section 488 for the karta and members.

Practical checklist

Frequently asked questions