Section 487 Income Tax Act 2025: When Are Directors Liable for Company Tax Offences?
Section 487 of the Income-tax Act, 2025 explains when a company and the individuals responsible for its business may face prosecution for an offence under the Act. It also sets out a defence based on lack of knowledge or due diligence, extends liability to officers whose consent, connivance or neglect contributed to an offence, and defines the entities covered.
What does Section 487 provide?
The section addresses offences committed by companies and specifies circumstances in which persons managing or controlling their business may also be treated as guilty. The company remains answerable; the provision does not automatically make every shareholder or every director guilty merely because of a title or ownership interest.
For individual liability under subsection (1), the statutory test focuses on whether the person was in charge of and responsible to the company for conducting its business when the offence occurred. A separate rule applies under subsection (3) when the offence is shown to involve an officer's consent, connivance or neglect.
Section 487(1) to 487(5) explained
Section 487(1): Company and responsible persons
If an offence under the Act is committed by a company, both the company and each person who was in charge of and responsible to it for the conduct of its business at the relevant time are deemed guilty and may be prosecuted and punished under the applicable offence provision.
Section 487(2): Defence against deemed liability
A person proceeded against under subsection (1) may avoid punishment by proving either that the offence occurred without that person's knowledge or that the person exercised all due diligence to prevent it. These are alternative statutory grounds, and their application depends on the evidence.
Section 487(3): Consent, connivance or neglect
Irrespective of subsections (1) and (2), a director, manager, secretary or other officer is also deemed guilty if the company's offence is proved to have occurred with that officer's consent or connivance, or to be attributable to that officer's neglect. The prosecution must establish the relevant connection; holding an office alone does not establish consent or neglect.
Section 487(4): Punishment of a corporate entity
Where the underlying offence prescribes imprisonment and a fine, the company is punishable with a fine. This does not prevent prosecution or punishment of individuals falling within subsection (1) or (3) according to the Act. The precise punishment for an individual depends on the underlying offence and its applicable statutory provisions.
Section 487(5): Expanded meanings
For this section only, the expressions company and director carry the specific expanded meanings explained below.
Relevant statutory definitions
- Company: A body corporate; it expressly includes a firm and an association of persons or body of individuals, whether incorporated or not.
- Director in a firm: A partner in that firm.
- Director in an association of persons or body of individuals: A member controlling its affairs.
- Person in charge and responsible: The operative description in Section 487(1) of the individual's role at the time of the offence; this is a factual test, not merely a job title.
- Due diligence: Section 487(2) uses this expression without providing a closed list of qualifying acts. Relevant preventive measures must be proved on the facts.
Who can face prosecution for a company income-tax offence?
| Person or entity | Statutory basis | Key requirement |
|---|---|---|
| Company, firm or covered association | 487(1), 487(5) | An underlying offence under the Act committed by the entity |
| Person managing the company's business | 487(1) | In charge of and responsible for business conduct when the offence occurred, subject to 487(2) |
| Director, manager, secretary or other officer | 487(3) | Proved consent, connivance or neglect connected to the offence |
| Partner of a firm | 487(5) | Falls within the special meaning of director; liability still depends on the operative provisions |
| Passive shareholder or unrelated employee | Not by status alone | Specific statutory grounds of responsibility must be established |
Important: Section 487 does not replace the ingredients of the underlying prosecution offence, such as those in Sections 476, 477 or 478.
How can a director or officer establish the statutory defence?
For a person covered by Section 487(1), contemporaneous evidence may assist in proving lack of knowledge or preventive due diligence. Depending on the facts, this can include documented tax-compliance responsibilities, internal controls, escalation emails, periodic reviews, written instructions to accounting personnel, compliance audits and evidence of action taken promptly on discovering a default.
The availability of the subsection (2) defence must be considered separately from the subsection (3) rule concerning proved consent, connivance or neglect. A mere statement that a director was not involved, without supporting facts, may not be sufficient.
Practical illustrations
Example 1: Managing director responsible for tax compliance
A managing director directly supervises the company's tax operations when an alleged offence occurs. Section 487(1) may be relevant, subject to proof of the underlying offence and the individual's statutory defence.
Example 2: Non-executive director with no operational role
A non-executive director has no responsibility for the conduct of daily business and did not consent to, connive in or neglect any relevant duty. The person's designation alone is not sufficient to establish liability under Section 487; the actual facts and allegations remain decisive.
Example 3: Officer directs false entries
An officer knowingly instructs staff to falsify accounting documents in connection with an offence. If the underlying offence and the officer's consent or connivance are proved, Section 487(3) may apply.
Example 4: Partnership firm
A partnership firm is accused of a tax prosecution offence. The firm falls within the special definition of company, and partners fall within the definition of director. The operative liability requirements must nevertheless be examined for each person.
Section 487 and the earlier Income-tax Act, 1961
Section 487 broadly corresponds to Section 278B of the Income-tax Act, 1961, which also dealt with offences by companies. Decisions interpreting comparable language may offer guidance, but must be applied in light of the statutory text, facts and any subsequent changes in law.
Related provisions include Section 486 (reasonable cause for specified TDS/TCS failures) and Section 488 (offences by Hindu undivided families). Section 487 is not a substitute for those separate rules.
Frequently asked questions
Does Section 487 automatically make every director criminally liable?
No. Subsection (1) concerns persons in charge of and responsible for the conduct of the company business at the time of the offence. Subsection (3) separately addresses consent, connivance or neglect by specified officers.
Can a director avoid punishment by showing lack of knowledge?
Section 487(2) allows a person covered by subsection (1) to prove that the offence occurred without that person's knowledge or that all due diligence was exercised to prevent it.
Does Section 487 apply to partnerships?
Yes. The special definition of company includes a firm, and director in relation to a firm means a partner.
Can a company be imprisoned under Section 487?
No. Where the underlying offence carries imprisonment and fine, Section 487(4) provides for punishment of the company with a fine; relevant individuals may be prosecuted and punished under the Act.
Is Section 487 itself a separate tax-evasion offence?
It establishes attribution of criminal liability for offences committed under the Income-tax Act. The underlying offence and its elements must still be identified.
Official statutory sources and further reading
- Income-tax Act, 2025, as amended by Finance Act, 2026 - Income Tax Department
- Income Tax Department official website
Editorial note: This article is a general explanation of Section 487. Liability in a particular case depends on the charged offence, the accused person's role and the available evidence.