Businesses that deduct or collect tax at source may receive protection from prosecution where TDS or TCS is deposited after the normal payment deadline but within the prescribed time for filing the relevant TDS/TCS statement. However, this protection does not mean that the original payment deadline has been extended.

Background

Under the earlier Income-tax Act, 1961, failure to deposit tax deducted at source could attract prosecution under Section 276B.

Relief for TDS was introduced with effect from 1 October 2024. The Income Tax Department confirms that prosecution under Section 276B does not apply where the TDS is paid to the credit of the Central Government on or before the prescribed time for filing the relevant TDS statement.

A corresponding relaxation for TCS was subsequently introduced under Section 276BB with effect from 1 April 2025. The CBDT's Budget 2025 FAQs specifically clarified this protection for delayed payment of TCS.

Position Under the Income-tax Act, 2025

The Income-tax Act, 2025, applicable from 1 April 2026, continues this framework.

The relevant provisions are:

• Section 476 – deals with failure to pay tax deducted at source to the credit of the Central Government.

• Section 477 – deals with failure to pay tax collected at source to the credit of the Central Government.

In the case of TCS, Section 477 specifically provides protection where the collected tax is deposited on or before the prescribed time for filing the statement under Section 397(3)(b).

What Does This Mean for Businesses?

The prosecution protection is important for genuine cases where TDS or TCS is deposited late but the default is corrected within the prescribed statement-filing timeline.

However, businesses should remember:

• The statutory due date for depositing TDS/TCS remains unchanged.

• Depositing tax by the statement-filing deadline may protect against prosecution in qualifying cases, but it does not make the original delay compliant.

• Interest on delayed deposit may still be payable.

• Under Section 398(3)(a)(ii) of the Income-tax Act, 2025, delayed payment after deduction or collection generally attracts interest at 1.5% for every month or part of a month, from the date of deduction or collection until actual payment.

• Other applicable compliance consequences should be reviewed separately.

Clarification on the Taxation and Other Laws (Amendment) Act, 2026

The Taxation and Other Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 4 August 2026, passed by Parliament and received Presidential assent on 17 August 2026.

The TDS/TCS prosecution protection discussed above should not be described as a new relief introduced by this Amendment Act. The protection originates from earlier amendments and continues under the Income-tax Act, 2025.

Conclusion

The prosecution-relief framework provides meaningful protection where a genuine TDS/TCS payment delay is regularised within the prescribed statement-filing timeline. Nevertheless, taxpayers should continue depositing TDS and TCS within the normal statutory due dates because interest and other consequences of delayed payment may still apply.

Businesses should maintain proper reconciliations, monitor deposit and statement-filing deadlines, and promptly regularise any identified default.