The article argues that under Sections 276B and 276BB of the Income Tax Act, 1961, prosecution for delayed deposit of TDS/TCS is not legally sustainable on a strict interpretation. These provisions penalize “failure to pay” tax to the Central Government but do not explicitly cover delays in deposit within prescribed timelines. The author emphasizes that absence of clear wording or punctuation linking payment to prescribed timelines means only complete non-payment attracts prosecution, not delayed payment. Judicial principles on strict interpretation of taxing statutes and limits of provisos support this view. Although amendments via the Finance (No. 2) Act, 2024 introduced relief where delayed deposits are made before filing TDS returns, the author contends that a proviso cannot expand the scope of the main provision. However, under the new Income Tax Act, 2025 (Sections 476–477), the law explicitly includes delayed deposit beyond return filing deadlines as a punishable offence, marking a clear legislative shift.
No Prosecution for delay deposit of TDS TCS under Income Tax Act 1961?
Now what for delay deposit of TDS TCS from tax year 2026-27?
As per interpretation of Sec. 276B and 276BB it is generally stated that delay deposit of TDS TCS shall be punishable for imprisonment and/or fine, as the case may be. Or it is liable for compounding.
But this interpretation seems to be wrong on strict and correct interpretation of law.
1961 Act: Section 276B main heading:- Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.
Sec. 276B: If a person fails to —
(a) pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; .———-
——–he shall be punishable with rigorous imprisonment ——.
In view of the author, the correct and strict interpretation of above section will be, that, if tax deducted at source is not paid then only, he shall be punishable with imprisonment and/or fine, i.e. if he fails to pay, the Tax deducted at source as required by or under the provisions of Chapter XVII-B.
It is evident that Sec. 276B nowhere speaks about time and manner of deposit of TDS, it only talks about tax deducted at source as per Chapter XVII-B.
Section 276B nowhere speaks about tax to be deposited as per Chapter XVII-B.
If drafting of Sec. 276B would have been as follows, then only deductor could be punishable for delay deposit of TDS:-
Sec. 276B: If a person fails to —
(a) pay to the credit of the Central Government, the tax deducted at source by him, as required by or under the provisions of Chapter XVII-B; .———-
——–he shall be punishable with rigorous imprisonment ——.
If punctuation mark comma would have been inserted as above, after the phrase, “the tax deducted at source by him”, in Sec. 276B(a), then only it can mean that tax deducted is to be paid as required by or under the provisions of Chapter XVII-B.
In absence of above referred punctuation mark of comma, as per the prevalent drafting of Sec. 276B, it can be concluded that no deductor shall be punishable for imprisonment or fine due to delay deposit of TDS.
Similar drafting is there as per Sec. 276BB of I.T. Act, 1961 in case of Tax collected at source – TCS, i.e. delay deposit of TCS cannot be punishable for imprisonment or fine.
First ever time limit specified U/s. 276B w.e.f. 1-10-2024:-
By the Finance (No.2) Act, 2024 a proviso was inserted U/s. 276B, first ever specifying that if payment of TDS to the credit of Central Govt. is delayed, but deposited on or before the time prescribed for filing the statement for such payment U/s. 200(3), then he shall not be punishable with imprisonment or fine. For example: if tax is deducted on 12-1-2026 but instead of depositing TDS upto 7-2-2026, if deposited on or before 31-5-2026 i.e. due date for 4th quarter of TDS statement (TDS return), then Sec. 276B shall not be attracted. If such TDS is deposited after due date of furnishing relevant TDS statement, e.g. deposited after 31-5-2026 then he shall be punishable with imprisonment or fine, as the case may be.
Similar proviso has been inserted U/s. 276BB w.e.f. 1-4-2025 for delay deposit of TCS.
In the opinion of the author since the main heading of Section 276B and 276BB and main Section 276B and 276BB nowhere specifies delay deposit as default liable for imprisonment or fine, therefore since Sec. 276B and 276BB itself has no authority for punishing with imprisonment or fine for delay deposit of TDS TCS, then no prosecution can be initiated based on proviso. Scope of a section cannot be expanded by inserting a proviso.
In Shah Bhojraj Kuverji Oil Mills & Ginning Factory vs. Subhash Chandra Jograj Sinha, AIR, 1961 SC 1596, at page 1600, the parameters of a proviso was summed up by the Supreme Court: “The Law with regard to provisos is well-settled and well-understood. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule.”
Honourable Supreme Court of India in the case of Commr. Of Customs Mum. V. Dilip Kumar and Company, Civil Appeal No. 3327 of 2007, dt. 30-7-2018 at para 41 of the order it was stated, “After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee.”
From the above it can clearly be inferred that for any tax deducted at source or collected at source, in case of delay deposit of TDS TCS it is not punishable with imprisonment or fine, but if he fails to deposit at all then only it is punishable offence, hence in case of delay deposit of TDS TCS even compounding is not required at all.
Now what is position under New Income Tax Act 2025 U/s. 476 and 477 regarding delay deposit of TDS TCS?:-
Under new Income Tax Act, 2025: Sec. 476 and 477 has been drafted in such a manner so that now delay deposit of TDS TCS shall be punishable with imprisonment or fine, if deposited after due date of furnishing TDS TCS statement of relevant quarter, as the case may be (as per amendment introduced in Finance bill 2026 under the 1961 and the 2025 Act)
Main heading of Sec. 476:- Failure to pay tax to credit of Central Government under Chapter XIX-B.
“Sec. 476. (1) If a person 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, as required under—
(i) Note 2 below the Table in section 393(3); or
(ii) Note 6 to section 393(1) (Table: Sl. No. 8),
he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine.
(2) The provisions of this section shall 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 such payment.”
Conclusion:- From the reading of above comparison of Sec. 276B of 1961 Act and Sec. 476 of 2025 Act it is clear that, drafting in the Sec. 276B of 1961 Act held non-payment of TDS as punishable offence, and Sec. 276B nowhere specified that tax deducted is to be deposited as required by or under the provisions of Chapter XVII-B, i.e. delay deposit was not covered, only failure to pay was covered U/s. 276B. Whereas now under new Income Tax Act 2025 u/s. 476 tax deducted is to be paid to the credit of Central Government as required by or under the provisions of Chapter XIX-B [i.e. to be deposited within specified time limit and limited exception/relaxation is provided under sub-section 2 of Sec. 476].
The existing circulars issued by the CBDT relating to compounding of offences and other relevant relaxations shall continue to remain in force under the new Income-tax Act, to the extent they are not inconsistent with the provisions of the new Act, unless specifically withdrawn, modified, or superseded by fresh circulars issued in this regard. Honourable Bombay High Court considering various other grounds and distinguishing the SC judgment of Madhumilan Syntex Ltd and others Vs. Union of India and another [(2007) 11 Supreme Court Cases 297], has already passed judgment in favour of the assessee/deductor in the case of Hemant Mahipatray Shah and anr. Vs. Anand Upadhyay and Anr. vide Cri. WP 3038 of 2022 order dt. 12-8-2024 by quashing the prosecution proceedings U/s. 276B of Income Tax Act, and SLP of revenue also dismissed by Honourable Supreme Court, Cri. Diary No. 14669/2025 order dt. 17-4-2025.
The tax deductors and tax collectors may also kindly be aware that delay deposit is not a right and the above article and views can guide only in cases where delay deposit has occurred under exceptional circumstances or reasonable causes.
Author Bio
Very logical interpretation.