Section 478 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 478 punishes a person who wilfully attempts, in any manner, to evade tax, penalty or interest, or who under-reports income, and a person who wilfully attempts to evade payment of tax, penalty or interest. 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.
The word that matters is wilfully. Punishment depends on the amount sought to be evaded (or the tax on under-reported income): above fifty lakh rupees, simple imprisonment up to two years, or fine, or both; above ten lakh rupees up to fifty lakh rupees, simple imprisonment up to six months, or fine, or both; otherwise, fine. Sub-sections (1) and (2) were substituted by the Finance Act, 2026, with effect from 1-4-2026. Sub-section (4) lists acts that are included in a wilful attempt.
Sub-section (1): evading tax, penalty or interest, or under-reporting income
Sub-section (1) applies to a person who wilfully attempts in any manner to evade any tax, penalty or interest chargeable or imposable, or under-reports his income, under the Act. The punishment depends on the amount sought to be evaded or the tax on under-reported income:
| Amount sought to be evaded or tax on under-reported income | Punishment |
|---|---|
| (a) exceeds fifty lakh rupees | Simple imprisonment for a term up to two years, or fine, or both |
| (b) exceeds ten lakh rupees but does not exceed fifty lakh rupees | Simple imprisonment for a term up to six months, or fine, or both |
| (c) any other case | Fine |
The tax on under-reported income is worked out under section 439; see our post on section 439. If you need to review whether your return reports income fully, our income tax return filing service can help.
Sub-section (2): evading payment
Sub-section (2) applies to a person who wilfully attempts in any manner to evade payment of any tax, penalty or interest under the Act. The bands are the same, measured by the amount sought to be evaded: above fifty lakh rupees, simple imprisonment up to two years, or fine, or both; above ten lakh rupees but not above fifty lakh rupees, up to six months, or fine, or both; any other case, fine. The difference between the two sub-sections is the target: sub-section (1) is about evading the charge of tax, penalty or interest (or under-reporting), sub-section (2) is about evading payment of what is due.
Sub-section (3): penalty is separate
The punishment in the section is "without prejudice to any penalty that may be imposable under any other provision of this Act". A person can face both prosecution and a penalty such as the one in section 439.
Sub-section (4): what a wilful attempt includes
For the purposes of the section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act, or the payment thereof, includes a case where a person:
- (a) has in his possession or control any books of account or other documents, relevant to any proceeding under the Act, containing a false entry or statement; or
- (b) makes or causes to be made any false entry or statement in such books of account or other documents; or
- (c) wilfully omits or causes to be omitted any relevant entry or statement in them; or
- (d) causes any other circumstance to exist which will have the effect of enabling him to evade any tax, penalty or interest chargeable or imposable under the Act, or the payment of it.
The word "includes" means these four cases are covered without limiting the general wording. The section does not define "wilfully", and the text is silent on its meaning.
What the Finance Act, 2026 did
A footnote states that sub-sections (1) and (2) were substituted by the Finance Act, 2026, with effect from 1-4-2026. Sub-sections (3) and (4) stand as printed above. The band structure (more than fifty lakh rupees, more than ten lakh rupees up to fifty lakh rupees, and any other case) is the current text of both sub-sections.
Related provisions
- Waiver of penalty and immunity from initiation of proceedings under section 478 or 479 on conditions: section 440.
- Failing to furnish returns: section 479.
- Not paying deducted tax: section 476.
- Other offences, including false statements and falsified books: sections 480 to 483.
- Offences by companies and presumptions in prosecution: sections 487 to 490.
A worked example
All amounts are assumed; names are invented. Lakeview Imports Private Limited has a director who instructs the accountant to post a false purchase entry in the books to cut profit. Tax of Rs. 18,00,000 would be evaded if the entry were accepted. Sub-section (4)(b) treats making a false entry as a wilful attempt. The amount sought to be evaded exceeds ten lakh rupees but does not exceed fifty lakh rupees, so sub-section (1)(b) applies: simple imprisonment up to six months, or fine, or both. Had the amount been Rs. 55,00,000, sub-section (1)(a) would apply. Had it been Rs. 6,00,000, sub-section (1)(c) would apply and the punishment would be fine.
Practical points
- Books of account are central: sub-section (4) makes both a false entry and a wilful omission part of the offence, and also possession or control of books containing a false entry.
- A penalty and a prosecution can run side by side, because of sub-section (3).
- The text of the section speaks of intent. Records that show how and why entries were made help establish what happened.
Need help?
If you are facing a notice that mentions prosecution, take advice before you reply. Our legal consultation service and legal dispute resolution service can help you plan the response.
Key takeaways
- The offence needs a wilful attempt.
- Sub-section (1): evading charge or under-reporting; sub-section (2): evading payment.
- Bands: over Rs. 50 lakh (up to two years), over Rs. 10 lakh to Rs. 50 lakh (up to six months), otherwise fine.
- Sub-section (4) lists false entries, omissions and other circumstances.
- Substituted w.e.f. 1-4-2026.
Read next
- Section 479: prosecution for not filing a return
- Section 476: prosecution for not depositing TDS
- Section 439: penalty for under-reporting
- Section 440: waiver of penalty and immunity from prosecution
- 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.