Penalty and Prosecution for failure to collect tax at source [ Section 271CA and section 276BB ] - Income Tax - Ready Reckoner - Income Tax

Penalty for failure to collect tax at source [ Section 271CA ] Scope and Applicability Section 271CA was inserted with effect from April 1, 2007, and applies to defaults occurring on or after that date. The amendment by the Finance Act, 2025, shifting the authority to the Assessing Officer, is prospective and applies to penalties imposed on or after April 1, 2025, regardless of the period of default. This distinction is important for determining the competent authority in ongoing or future proceedings. If any person who is required to collect tax at source under the provisions of Chapter XVII-BB , and who fails to do so, either wholly or in part. If any person fails to collect the whole or any part of the tax as required by or under the provisions of Chapter XVII-BB , then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to collect as aforesaid. such penalty shall be imposed by the Joint Commissioner. In other words, Penalty under Section 271CA shall be imposed if a person fails to collect the whole or any part of tax which is required to be collected in accordance with Section 206C . Quantum of Penalty it is equal to the amount of tax that was required to be collected but was not. Authority to Impose Penalty From 01-04-2025 - any penalty under sub-section (1), on or after the 1st day of April, 2025, shall be imposed by the Assessing Officer. [ Inserted vide Section 83 of the Finance Act, 2025 ] Upto 31.03.2025 - Originally, the power to impose a penalty u/s 271CA was vested in the Joint Commissioner of Income-tax. Prosecution [ Section 276BB ] If a person fails to pay to the credit of the Central Government, the tax collected by him as required under the provisions of section 206C, 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. The provisions of section 276BB shall 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 under the proviso to section 206C(3) in respect of such payment. [ Inserted vide Section 89 of the Finance Act, 2025 w.e.f. 01.04.2025 ] Guidelines for Compounding of any Offences under the Income-Tax Act, 1961. Other Point Defense of Reasonable Cause:- Section 273B of the Income-tax Act provides that no penalty shall be imposable on a person for any failure referred to in certain specified sections, including Section 271CA, if he proves that there was reasonable cause for the failure. This provision is an important safeguard against the mechanical or unjust imposition of penalties. Section 271CA (TCS penalty) is analogous to Section 271C, which deals with penalties for failure to deduct tax at source (TDS). Both provisions prescribe a penalty equal to the amount of tax not collected/deducted and are subject to the reasonable cause defense u/s 273B. The symmetry between TDS and TCS penalty provisions reflects the legislative intent to treat both collection and deduction failures with equal seriousness.