Section 477 Failure to pay tax collected at source

Income-tax Act, 2025

At a Glance

The material comprises two related texts: (a) Section 477 of the enacted Income-tax Act, 2025 (as reproduced at Document 1) and (b) Clause 477 of the Income Tax Bill, 2025 - Old Version (Document 2). Both provisions criminalise failure to pay tax collected at source, prescribing imprisonment and fine. The principal differences are limited to the cross-reference to other sections (section 397(3)(a) in the enacted text vs section 394 in the Bill) and minor drafting variations concerning the timing language for the exclusion. The provisions affect persons who collect tax at source (tax collectors), the Central Government's revenue protection, and criminal prosecution authorities. Effective date or enactment date: Not stated in the document.

Background & Scope

Statutory hooks: The Old Version is captioned as "Clause 477" in the Income Tax Bill, 2025 - Old Version, and appears under the chapter heading OFFENCES AND PROSECUTION. It expressly operates in relation to the statutory duty to "pay to the credit of the Central Government the tax collected by him as required u/s 394." The clause establishes a penal sanction (rigorous imprisonment and fine) for failure to discharge that duty. There are no further definitions, procedural rules, or explanatory notes within the text of Clause 477 as reproduced.

Statutory Provision Mode

Text & Scope

Clause 477(1) - Offence: The provision creates a penal offence where "a person fails to pay to the credit of the Central Government the tax collected by him as required u/s 394." The prescribed punishment is rigorous imprisonment for a term not less than three months and which may extend to seven years; the person "shall also be liable to fine." Clause 477(2) - Exception / Non-application: The clause does not apply "if the payment of the tax collected at source has been made to the credit of the Central Government at any time on or before the time prescribed for filing the statement u/s 397(3)(b) in respect of such payment." Coverage: The text targets persons who collect tax at source and fail to remit it to the Central Government; it is criminal rather than civil.

Interpretation

Legislative intent and interpretive principles indicated by the text: Not stated in the document. The text itself indicates a punitive policy intent to deter non-remittance of collected taxes by imposing imprisonment and fine. The cross-reference to section 394 establishes the statutory duty being enforced, but the scope and contours of that duty depend on section 394 (not reproduced here). The phrase "tax collected by him" suggests personal liability of the collector for remittance, but whether corporate officers or third parties are implicated depends on other provisions and rules not included. The clause's language does not elaborate mens rea, mitigation, or gradation of culpability.

Exceptions/Provisos

The single proviso-like sub-section (2) provides a temporal exemption: where payment to Government credit has been made "at any time on or before the time prescribed for filing the statement u/s 397(3)(b) in respect of such payment," clause 477 will not apply. The exemption is strictly temporal and appears to permit late physical remittance up to the prescribed statement-filing time; it does not mention other grounds for exemption such as bona fide error, insolvency, or set-off rights. There is no mitigating or discretionary provision in the clause itself (for example, no minimum fault element less than intention or knowledge).

Illustrations

• Example 1: A vendor collects tax at source from customers on a supply on 1 April but does not remit that tax to the Central Government and still has not made payment by the time fixed for filing the statement u/s 397(3)(b). Under Clause 477(1) this failure would attract prosecution exposure for rigorous imprisonment between three months and seven years and fine. (Derived from the text.)
• Example 2: A person collects tax at source and remits the collected amount to Government on the same day that the statement u/s 397(3)(b) must be filed. According to Clause 477(2) the penal provision would not apply because payment was made on or before the prescribed time for filing the statement. (Derived from the text.)

Interplay

Interaction with Rules/Notifications/Circulars: Not stated in the document. The clause cross-refers to section 394 (which supplies the underlying duty to collect and remit tax) and to section 397(3)(b) (which prescribes the time for filing the statement); both cross-references are instrumental for operationalising Clause 477 but the content of those sections is not reproduced here. The clause does not mention any procedural requirements, compoundability, or filing forms, nor does it indicate interaction with prosecution procedure statutes such as the Criminal Procedure Code or with powers of assessment/penalty under other Income-tax Act provisions.

Differences between the two provisions and Practical Impact

Practical impact of each change:

• Cross-reference change (section 394 -> section 397(3)(a)): This is the most substantive drafting difference. It aligns the offence to a specific duty provision in section 397(3)(a) in the enacted text rather than to section 394 in the Bill. The practical effect depends on the content of those sections: if section 397(3)(a) narrows or modifies the remittance duty compared to section 394, liability scope will change accordingly; if it is substantially the same duty, the change may be merely a drafting clarification. The enacted text therefore potentially alters which statutory duty triggers criminal liability. (Specific substance of sections 394 and 397(3)(a): Not stated in the document.)
• Exception wording (removal of "at any time"): The Bill used "at any time on or before," while the enacted text uses "on or before." The practical difference is likely negligible in ordinary interpretation: both establish a temporal cut-off equal to the prescribed statement-filing time. The enacted wording is slightly more concise and may reduce ambiguity about the phrase "at any time," but no operational change is evident from the texts alone.
• Penalty phrasing ("shall also be liable to fine" vs "and with fine"): Both impose fine in addition to imprisonment. There is no substantive change to the availability of fine as an accessory punishment; the enacted text's phrasing is more conventional for penal statutes but does not materially alter the penalty regime as expressed in these extracts.

Practical Implications

• Compliance and risk areas: Persons who collect tax at source face criminal exposure if they fail to pay the collected sum to Government. The clause sets a significant minimum term of imprisonment (three months) and a maximum of seven years, in addition to fine; this elevates the compliance risk profile for collectors. The exception is strictly time-bound to payment at any time on or before the prescribed statement filing time u/s 397(3)(b).
• Record-keeping/evidence points: To invoke the exception under sub-section (2), the relevant payer must establish the date and manner of payment to Government credit and the timing of the prescribed statement. Records evidencing remittance (bank challans, Government receipt records) and the prescribed statement filing timetable u/s 397(3)(b) will be central. The burden of proof for non-application or otherwise is not specified in the clause; therefore, robust contemporaneous evidence of remittance is essential.

Key Takeaways

• Clause 477 of the Income Tax Bill, 2025 criminalises failure to remit tax collected at source, prescribing rigorous imprisonment (3 months - 7 years) and fine.
• The offence attaches specifically to failure to pay "to the credit of the Central Government the tax collected by him as required u/s 394."
• An explicit temporal exception protects persons who make payment to Government credit on or before the time prescribed for filing the statement u/s 397(3)(b).
• The clause does not specify mens rea, procedural safeguards, or mitigating grounds; none are included in the text.
• Operationalisation requires reference to other sections (section 394, section 397(3)(b)) and documentary proof of remittance; these are not reproduced in the clause.
• The clause does not mention compounding, prosecution thresholds, or interplay with other criminal/civil remedies.
• Practitioners should note the heavy criminalisation and the narrowness of the textual exception (time-based only).

Full Text:

Section 477 Failure to pay tax collected at source