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Section 478 Income Tax Act 2025: What Is the Punishment for Wilful Tax Evasion?

Section 478 criminalises wilful attempts to evade income tax, penalty or interest, including deliberate under-reporting of income and wilful evasion of payment. The current law prescribes graded punishment based on the amount involved.

Law as on 12 November 2026: Section 113 of the Finance Act, 2026 substituted Section 478(1) and (2), effective 1 April 2026. The amended provisions use simple imprisonment and amount-based thresholds instead of the earlier rigorous imprisonment regime. Subsections (3) and (4) remain relevant.

What conduct is covered by Section 478?

Section 478 forms part of Chapter XXII, dealing with offences and prosecutions. It covers a wilful attempt to evade tax, penalty or interest chargeable or imposable under the Income-tax Act, 2025, deliberate under-reporting of income, and a wilful attempt to evade payment of tax, penalty or interest.

The word wilful matters. A mere difference in tax computation, an inadvertent accounting error or an unsuccessful legal claim does not, without more, establish deliberate evasion. The evidence, conduct and applicable statutory requirements must be examined.

What is the punishment under Section 478?

Amount sought to be evaded or relevant tax on under-reported incomePunishment under Section 478(1) and (2)
Rs. 10,00,000 or lessFine
Above Rs. 10,00,000 and up to Rs. 50,00,000Simple imprisonment for a term up to six months, or fine, or both
Above Rs. 50,00,000Simple imprisonment for a term up to two years, or fine, or both

For Section 478(1), the relevant measure is the amount sought to be evaded or the tax on under-reported income, as applicable. For Section 478(2), it is the amount sought to be evaded in relation to payment. These are not necessarily the same as gross income, total turnover or the amount of a disputed addition.

The provision does not specify a fixed amount of fine. Criminal punishment follows the applicable prosecution and judicial process; it is not imposed automatically by a tax assessment.

Section 478 explained subsection by subsection

Section 478(1): Wilful evasion or under-reporting

This subsection addresses wilful attempts to evade tax, penalty or interest chargeable or imposable under the Act, or wilful under-reporting of income. Punishment is graded by the relevant amount.

Section 478(2): Wilful evasion of payment

This separately addresses deliberate attempts to evade payment of tax, penalty or interest. It is important to distinguish a dispute over liability from conduct intentionally designed to defeat payment or recovery.

Section 478(3): Additional penalties may still apply

Punishment under Section 478 does not prevent a penalty from being imposed under another applicable provision of the Act. Criminal prosecution and civil tax or penalty proceedings serve different statutory functions.

Section 478(4): Illustrative forms of wilful evasion

The statute expressly includes specified conduct involving:

  • Possession or control of relevant books or documents containing a false entry or statement;
  • Making or causing a false entry or statement in relevant books or documents;
  • Wilfully omitting or causing omission of a relevant entry or statement; and
  • Creating another circumstance enabling evasion of tax, penalty, interest or payment thereof.

These descriptions must be read in the statutory context of a wilful attempt; they should not be treated as making every clerical mistake a criminal offence.

Relevant statutory terms and concepts

Wilful attempt: Deliberate conduct aimed at evasion, rather than a purely accidental error. Whether intention is established depends on the facts and evidence.
Under-reported income: Income treated as under-reported under the applicable statutory provisions; the tax on that income, rather than the income amount itself, is relevant to the threshold stated in Section 478(1).
Tax sought to be evaded: The relevant amount of tax involved in the alleged wilful attempt, determined from the applicable statutory provisions and case facts.
Books of account and other documents: Accounting records and documents relevant to proceedings under the Act, including those referred to in Section 478(4).
Simple imprisonment: Imprisonment without the hard-labour element of rigorous imprisonment. Under the amended law, imprisonment is an alternative to a fine in the higher amount bands.

Practical examples of Section 478

Example 1: Deliberate evasion involving Rs. 8 lakh

Assume the prosecution proves a wilful attempt to evade Rs. 8 lakh in tax. The statutory punishment band is a fine under Section 478(1)(c). The example does not prescribe the amount of the fine.

Example 2: False entries leading to Rs. 30 lakh tax evasion

Assume deliberate false accounting entries are proved and the tax sought to be evaded is Rs. 30 lakh. Section 478(1)(b) provides simple imprisonment up to six months, or fine, or both.

Example 3: Wilful payment evasion of Rs. 75 lakh

Assume the evidence proves an intentional attempt to defeat payment of Rs. 75 lakh in tax. Section 478(2)(a) permits simple imprisonment up to two years, or fine, or both.

Example 4: Bona fide accounting mistake

An inadvertent entry that is promptly corrected is not, by itself, proof of a wilful attempt. Whether prosecution is justified depends on the surrounding evidence and the legal ingredients of the offence.

What changed under the Finance Act, 2026?

The Finance Act, 2026 substituted subsections (1) and (2) with effect from 1 April 2026. The original Section 478(1) had provided rigorous imprisonment of six months to seven years with fine for amounts exceeding Rs. 25 lakh, and three months to two years with fine in other cases. The original Section 478(2) also prescribed rigorous imprisonment. The substituted provisions now prescribe the three bands shown above, including a fine-only band for amounts up to Rs. 10 lakh.

Section 478 broadly corresponds to Section 276C of the Income-tax Act, 1961. The law applicable to earlier conduct and any transitional issues should be considered separately rather than assuming the current punishment structure applies retrospectively.

How should a person respond to a wilful tax evasion allegation?

  1. Identify whether the allegation concerns evasion of liability, under-reporting or evasion of payment.
  2. Reconcile books of account, returns, tax computations, notices and supporting documents.
  3. Check how the amount sought to be evaded has been calculated and whether the statutory threshold is correctly applied.
  4. Preserve contemporaneous evidence explaining transactions, accounting treatment and any corrections.
  5. Respond to statutory notices within time and seek case-specific advice on prosecution sanction, available defences and applicable procedures.
Important: A tax demand, addition or civil penalty does not automatically establish the criminal element of wilful evasion. Conversely, payment of outstanding tax does not by itself guarantee that a prosecution allegation is extinguished.

Frequently asked questions

What is the punishment for wilful tax evasion under Section 478?

Up to Rs. 10 lakh: fine. Above Rs. 10 lakh and up to Rs. 50 lakh: simple imprisonment up to six months, or fine, or both. Above Rs. 50 lakh: simple imprisonment up to two years, or fine, or both.

Does Section 478 cover false entries in books of account?

Yes. Section 478(4) includes specified false entries, wilful omissions and other circumstances enabling tax evasion.

Can a penalty be imposed in addition to prosecution?

Yes. Section 478(3) states that punishment is without prejudice to penalties imposed under other provisions of the Act.

Does every incorrect income-tax return amount to wilful evasion?

No. A prosecution allegation must be assessed against the statutory requirement of a wilful attempt and the evidence of the person's conduct.

Which provision of the 1961 Act broadly corresponds to Section 478?

Section 276C of the Income-tax Act, 1961 broadly deals with wilful attempts to evade tax.

Official statutory sources

Income-tax Act 2025, amended textFinance Act 2026Finance Act 2026, Section 113

Last reviewed: 12 November 2026. This article provides general statutory information and is not a substitute for advice on individual facts.