Key Highlights
- Chapter XXII prosecution requires: wilful default — not mere negligence
- Wilful failure to file ITR: imprisonment 3 months to 2 years — Section 469
- Wilful tax evasion (concealment): imprisonment 6 months to 7 years — Section 470
- TDS non-deposit: imprisonment 3 months to 7 years — Section 475
- Prosecution requires sanction of Principal Commissioner or above
- Compounding available: offences can be compounded on payment of prescribed amounts
Legal Reference
Chapter XXII, Sections 469-487, Income Tax Act, 2025 | Prosecution requires sanction of PCIT or above | Corresponds to Sections 276B-279 of ITA 1961
1. Key Prosecution Offences Under Chapter XXII
| Offence | Section | Imprisonment |
|---|
| Wilful failure to file ITR when taxable income exists | 469 | 3 months to 2 years |
| Wilful tax evasion (concealment, false statements) | 470 | 6 months to 7 years (+ fine) |
| Wilful attempt to evade tax by removal or concealment of assets | 471 | 6 months to 7 years |
| Failure to deduct or deposit TDS | 475 | 3 months to 7 years |
| False statement in verification (ITR, TDS return, etc.) | 472 | 6 months to 7 years |
| Failure to maintain books (deliberate) | 480 | Up to 1 year |
2. Wilful Default: The Key Element
Prosecution under Chapter XXII requires proof of wilful default — deliberate, intentional non-compliance. Mere negligence, computational error, or genuine misunderstanding of law is not sufficient for prosecution (though penalties may still apply). The prosecution must prove willfulness beyond reasonable doubt, as it is a criminal proceeding.
3. Prosecution vs Penalty: Key Differences
| Feature | Penalty (Chapter XXI) | Prosecution (Chapter XXII) |
|---|
| Nature | Civil — monetary | Criminal — imprisonment + fine |
| Standard of proof | Balance of probabilities | Beyond reasonable doubt |
| Willfulness required | Not always | Yes — essential element |
| Forum | Assessing Officer / Tribunal | Magistrate / Sessions Court |
4. Compounding of Offences
Most prosecution offences under Chapter XXII can be compounded — that is, settled before or during trial by paying a prescribed compounding fee. Compounding is allowed by the Principal Commissioner or higher authority. Payment of compounding charges results in withdrawal of prosecution. CBDT issues guidelines on compounding charges periodically.
5. Why TaxClue
Prosecution proceedings are serious and require specialised legal defence. If you receive a prosecution notice, immediate action with qualified legal counsel is essential. TaxClue coordinates expert legal representation for income tax prosecution cases. Contact us immediately if you receive a prosecution notice under Chapter XXII.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is income tax prosecution?
Income tax prosecution under Chapter XXII of the Income Tax Act, 2025 involves criminal proceedings against taxpayers for wilful tax defaults — such as deliberate failure to file ITR when taxable income exists, wilful concealment of income, false statements in verifications, or failure to deposit TDS. Unlike penalties (which are monetary and civil), prosecution can result in imprisonment and criminal conviction. Prosecution requires sanction from the Principal Commissioner of Income Tax or above.
What is the imprisonment for wilful tax evasion?
Wilful tax evasion under Section 470 of ITA 2025 — involving concealment of income, submission of false accounts, or deliberate misrepresentation — carries rigorous imprisonment of 6 months to 7 years, plus a fine. The 7-year maximum is one of the most serious criminal penalties in tax law. For offences where the tax evaded is below Rs 25 lakh, the imprisonment may be 3 months to 2 years.
What is the difference between penalty and prosecution?
Income tax penalties under Chapter XXI are civil in nature — they result in monetary payments only (50% for under-reporting, 200% for misreporting, etc.). Prosecution under Chapter XXII is criminal — it leads to court proceedings, potential imprisonment, and a criminal record. Penalties require proof on a balance of probabilities; prosecution requires proof beyond reasonable doubt and willfulness. Both can apply simultaneously for the same offence.
Can income tax prosecution be avoided by paying taxes?
Not automatically. Paying taxes, penalties, and interest after detection does not automatically withdraw prosecution — prosecution for wilful evasion can proceed independently. However, most offences under Chapter XXII can be compounded — settled before or during trial by paying compounding charges approved by the Principal Commissioner. Compounding is not a right but is granted in appropriate cases. Voluntary disclosure and cooperation with the investigation are factors considered in compounding applications.
What is TDS prosecution under Chapter XXII?
Under Section 475 of ITA 2025, wilful failure to deduct TDS or to deposit TDS after deduction within the prescribed time attracts prosecution with imprisonment of 3 months to 7 years plus fine. This is one of the most commonly initiated prosecutions. Employers who deduct TDS from employee salaries but fail to deposit it with the government are particularly at risk. The offence is strict — the government treats non-deposit of deducted TDS (which is effectively government money held in trust) very seriously.
