Section 476 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 476 makes it an offence to fail to pay to the credit of the Central Government the tax a person has deducted at source, and also the tax on online-game winnings and virtual digital asset transfers that the person must pay or ensure the payment of. This article explains the section as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
Later amendments, rules and notifications should be checked before you act. Deductors who want their payments and statements reviewed can use our TDS compliance service.
Punishment now depends on the amount of tax not paid: above fifty lakh rupees, simple imprisonment up to two years, or fine, or both; above ten lakh rupees but not above fifty lakh rupees, simple imprisonment up to six months, or fine, or both; in any other case, fine. Sub-section (1) was substituted by the Finance Act, 2026, with effect from 1-4-2026. Sub-section (2) switches the section off if payment is made by the time the statement is due under section 397(3)(b).
Sub-section (1): the two kinds of default
Sub-section (1) applies to a person who fails to:
- (a) pay the tax deducted at source by him to the credit of the Central Government, as required by or under the provisions of Chapter XIX-B; or
- (b) pay tax or ensure payment of tax to the credit of the Central Government in respect of:
- (A) any income by way of winnings from online games as referred to in section 393(3) (Table: serial number 2), excluding winnings that are wholly in kind, as referred to in Note 2 to that Table; or
- (B) any sum by way of consideration for transfer of a virtual digital asset as referred to in section 393(1) (Table: serial number 8(vi)), excluding consideration that is wholly in kind, as referred to in Note 6 to that Table.
Clause (a) covers tax actually deducted. Clause (b) covers the two cases where the payer must pay or ensure the payment of tax even though the winnings or consideration may be partly in kind; the Notes to section 393 explain that the payer must ensure tax has been paid before releasing the winnings or consideration. See our overview of section 393 and the article on winnings, online games and cash withdrawals.
The punishment bands
| Amount of tax | Punishment |
|---|---|
| Exceeds fifty lakh rupees | Simple imprisonment for a term up to two years, or fine, or both |
| Exceeds ten lakh rupees but does not exceed fifty lakh rupees | Simple imprisonment for a term up to six months, or fine, or both |
| Any other case | Fine |
The bands are in sub-section (1)(i), (ii) and (iii). The Act does not print the amount of the fine in this section. The Finance Act, 2026 substituted sub-section (1) with effect from 1-4-2026; the bands above are the text as it now stands.
Sub-section (2): payment before the statement date
The section does not apply if the payment referred to in sub-section (1)(a) has been made to the credit of the Central Government on or before the time prescribed for filing the statement under section 397(3)(b) in respect of that payment. Read closely, this protection is written for clause (a) (tax deducted) and refers to the time fixed for the statement. It does not mention clause (b). The time itself is fixed in section 397 and the rules; see section 397.
Reading the wording closely
Three phrases carry the section. "Tax deducted at source by him" ties clause (a) to tax that was actually deducted, so the offence is about not handing over what was withheld. "Pay tax or ensure payment of tax" in clause (b) is wider: the payer of online-game winnings or virtual digital asset consideration may have to see that tax reaches the Government even where the payment itself is wholly or partly in kind. "Exceeds" in the bands means a figure above the stated limit; tax of exactly fifty lakh rupees falls in the middle band and tax of exactly ten lakh rupees falls in the last band. The section does not say whether the amount is counted per payment or in total, so the text is silent on that point and the wording should be read with the proceedings in view.
Where the sections around it fit
- Tax collected at source: section 477, in our post on sections 473, 474, 475 and 477.
- Consequences of default in the deductor's hands: section 398 and the penalty sections for failure to deduct or collect tax, in sections 448 to 453.
- Waiver and immunity from prosecution in specified circumstances: section 440, which mentions sections 478 and 479 and not this section.
A worked example
All amounts are assumed; names are invented. Horizon Constructions deducts tax of Rs. 12,00,000 from payments during a quarter but does not pay it to the Government and does not pay it by the time prescribed for the statement under section 397(3)(b). The tax exceeds ten lakh rupees but does not exceed fifty lakh rupees, so sub-section (1)(ii) applies: simple imprisonment up to six months, or fine, or both. If the amount deducted and not paid were Rs. 60,00,000, sub-section (1)(i) would apply. If it were Rs. 8,00,000, sub-section (1)(iii) would apply and the punishment would be fine. If Horizon had paid the Rs. 12,00,000 on or before the time for filing the statement, sub-section (2) would stop the section from applying.
Practical points for deductors
- Track the due date for the statement as well as for payment: sub-section (2) uses the statement date.
- Keep challans and statements together; they show whether payment was made in time.
- Online-game and virtual digital asset payers should treat payments in kind with care, because clause (b) is about ensuring that tax is paid before release.
- This article covers only the words of section 476; how a prosecution is launched and conducted depends on other provisions of the Act and procedural law, which should be checked.
Need help with TDS payments?
Timely payment and clean statements keep you outside this section. Our TDS compliance service and TDS return filing service help deductors stay on track.
Key takeaways
- Offence: not paying deducted tax to the Government, or not paying or ensuring payment of tax on online-game winnings and virtual digital asset transfers.
- Bands: above Rs. 50 lakh up to two years; above Rs. 10 lakh to Rs. 50 lakh up to six months; otherwise fine.
- Sub-section (2): payment by the statement date takes clause (a) out of the section.
- Sub-section (1) substituted w.e.f. 1-4-2026.
Read next
- Section 393: tax deducted at source
- Section 397: compliance and reporting for TDS and TCS
- Section 398: assessee in default
- Sections 473, 474, 475 and 477: offences
- Income-tax Act 2025, Chapter XXII: offences and prosecution
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.