Chapter XXII - Offences and Prosecution
Section 491
Section 491: prosecution needs prior sanction, and offences can be compounded
Section 491 puts guardrails around when a tax prosecution can actually start. For a defined list of offences, a person cannot be prosecuted without the prior sanction of a senior tax authority, prosecution is barred in certain cases where a related penalty has already been reduced or waived, and any offence under this Chapter can be compounded (settled) by senior officers.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) A person shall not be proceeded against for an offence under section 473, 474, 475, 476, 477, 478, 479, 480, 481, 482, 483 or 484 except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or Joint Commissioner (Appeals).
(2) The Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General may issue such instructions or directions to the income-tax authorities mentioned in sub-section (1) as he may deem fit for institution of proceedings under that sub-section.
(3) A person shall not be proceeded against for an offence under section 478 or 482 in relation to the assessment for a tax year in respect of which the penalty imposed or imposable on him under section 439 has been reduced or waived by an order under section 469.
(4) Any offence under this Chapter may be compounded, either before or after the institution of proceedings, by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or Director General.
(5) Where any proceeding has been taken against any person under sub-section (1), any statement made or account or other document produced by such person before any income-tax authority specified in section 236(a) to (k) shall not be inadmissible as evidence for the purpose of such proceedings merely on the ground that— (a) such statement was made or such account or document was produced in the belief that the penalty imposable would be reduced or waived, under section 469; or (b) the offence for which such proceeding was taken would be compounded.
(6) The power of the Board to issue orders, instructions or directions under this Act shall include the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section.
Introduction
Section 491 controls initiation and composition of Income-tax Act prosecutions. Proceedings for the listed offences require previous sanction, and a section 469 waiver can bar specified prosecutions for the same assessment year.
Key takeaways
Prior sanction
Subsection (1) requires previous sanction from a named senior authority for offences under sections 473 to 484 listed there.
Waiver consequence
Where section 439 penalty is reduced or waived under section 469, subsection (3) bars a section 478 or 482 prosecution linked to that assessment.
Compounding
A named senior authority may compound a Chapter XXII offence before or after proceedings begin.
Sanction required before prosecution
"A person shall not be proceeded against for an offence under section 473, 474, 475, 476, 477, 478, 479, 480, 481, 482, 483 or 484 except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or Joint Commissioner (Appeals)."
The Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General may issue instructions or directions to income-tax authorities on instituting such proceedings.
No prosecution where a related penalty has been reduced or waived
A person cannot be proceeded against for an offence under section 478 or 482, in relation to the assessment for a tax year, if the penalty imposed or imposable on him under section 439 for that year has been reduced or waived by an order under section 469.
Compounding of offences
"Any offence under this Chapter may be compounded, either before or after the institution of proceedings, by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or Director General."
Admissibility of statements made during such proceedings
Where a proceeding has been taken against a person under sub-section (1), any statement made or account or document produced by that person before an income-tax authority specified in section 236(a) to (k) is not inadmissible as evidence merely because:
- the statement was made, or the document produced, in the belief that the penalty imposable would be reduced or waived under section 469; or
- the offence for which the proceeding was taken would be compounded.
Board's power over compounding
The Board's general power to issue orders, instructions or directions under the Act includes the power to issue instructions or directions (including requiring prior approval of the Board) to other income-tax authorities for the proper composition of offences under this section.
Step-by-step flow for applying Section 491
- 1
Is the alleged offence one under Section 473, 474, 475, 476, 477, 478, 479, 480, 481, 482, 483 or 484?
Section 491(1) lists these offences only.
- No: The previous-sanction requirement in Section 491(1) does not apply to that offence. Compounding under Section 491(4) can still apply to any offence under this Chapter.
- Yes: Go to the next step.
- 2
Has previous sanction been given by the Principal Commissioner, Commissioner, Commissioner (Appeals) or Joint Commissioner (Appeals)?
Under Section 491(2), the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General may issue instructions or directions to these authorities on instituting proceedings.
- No: Under Section 491(1), the person shall not be proceeded against for the offence.
- Yes: Go to the next step.
- 3
Is the offence under Section 478 or 482, and has the Section 439 penalty for that tax year's assessment been reduced or waived by an order under Section 469?
- Yes: Section 491(3) bars proceeding against the person for that offence in relation to that assessment.
- No: Go to the next step.
- 4
Is compounding being considered?
Under Section 491(4), any offence under this Chapter may be compounded, before or after proceedings are instituted, by the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General. Under Section 491(6), the Board may issue instructions or directions on proper composition, including a requirement to obtain the Board's previous approval. Section 491 itself does not state compounding conditions or charges.
- 5
Are statements or documents given to an income-tax authority being used as evidence?
Under Section 491(5), a statement, account or document produced before an authority specified in Section 236(a) to (k) is not inadmissible merely because it was given in the belief that the penalty would be reduced or waived under Section 469, or that the offence would be compounded.
Practical checklist
Do
- Check that the proposed offence is among the sections listed in sub-section (1) and identify the authority whose prior sanction is required.
- If section 478 or 482 prosecution is proposed after a section 469 penalty reduction or waiver, review the sub-section (3) protection for the same tax-year assessment.
- For a compounding request, identify the competent authority under sub-section (4) and review applicable Board directions under sub-section (6).
Avoid
- Do not treat sanction and compounding as the same step: they arise under different subsections and authorities.
- Do not assume a penalty waiver blocks every offence; sub-section (3) names sections 478 and 482 in its stated circumstances.
Illustrative example
Worked example: a proposed prosecution after a penalty waiver
Hypothetical facts (illustration only, not a real taxpayer): The department is considering prosecuting Mr. Rao under Section 482 (false statement in verification) for a tax year. For the assessment of that same tax year, the penalty imposable on him under Section 439 has been waived by an order under Section 469. Earlier, he gave a written statement to an income-tax authority hoping the penalty would be waived.
Check the list
Section 482 is one of the offences listed in Section 491(1), so previous sanction of a specified authority would be needed before any proceeding.
Check the bar
The offence is under Section 482 and the Section 439 penalty for that tax year's assessment has been waived by a Section 469 order. Section 491(3) therefore bars proceeding against him for that offence in relation to that assessment.
Sanction cannot cure the bar
Because Section 491(3) applies on these facts, obtaining sanction under Section 491(1) would not by itself allow the proceeding for this offence and assessment.
Evidence point
If a proceeding were validly taken under Section 491(1) in another matter, Section 491(5) says his statement would not be inadmissible merely because he made it in the belief that the penalty would be waived.
Outcome
- On these facts Section 491(3) bars prosecution of Mr. Rao under Section 482 in relation to that tax year's assessment.
- The bar is limited to offences under Sections 478 and 482 and to the assessment for which the Section 439 penalty was reduced or waived.
Glossary
- Previous sanction
- Approval required before proceeding against a person for the offences enumerated in section 491(1).
- Compounding
- Disposal of an offence by the competent authority under section 491(4), before or after proceedings begin, subject to applicable directions.
Frequently asked questions
Can prosecution under sections 473 to 484 start without any approval?
No - for offences under sections 473, 474, 475, 476, 477, 478, 479, 480, 481, 482, 483 or 484, prior sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or Joint Commissioner (Appeals) is required before a person can be proceeded against.
Can offences under this Chapter be settled instead of prosecuted?
Yes - Section 491(4) allows any offence under Chapter XXII to be compounded, either before or after proceedings are instituted, by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or Director General.
If my penalty under section 439 was waived, can I still be prosecuted?
Not for offences under section 478 or 482 relating to that same tax year - Section 491(3) bars prosecution for those offences once the related section 439 penalty has been reduced or waived under section 469.
Need help applying this provision to your situation?
Talk to our tax team about a prosecution sanctionLast updated 9 October 2026