Can an employer be prosecuted for not depositing TDS deducted from salary

Question

My employer deducted TDS from my salary but I found out it was never deposited with the government, and I want to know what happens to the employer. What I am unsure about is the procedure — where the application goes, what it costs, and how long section 276b matters usually take. A plain explanation of the steps, in order, would help more than a general answer.

MyVakeel Legal Desk · Accepted Answer

The law that applies to section 276b here is Income-tax Act, 1961, Section 276B, Income-tax Act, 1961, Section 201 and Income-tax Act, 2025. The detail below matters, because Income-tax Act, 1961, Section 276B draws the line differently depending on what your documents show.

Section 276B of the Income-tax Act, 1961 makes it a criminal offence to deduct tax at source and fail to deposit it with the government within the prescribed time, punishable with rigorous imprisonment of three months to seven years along with a fine.

Section 201 separately treats the deductor as an assessee in default for the unpaid amount, making the employer or payer personally liable to pay the tax along with interest, regardless of any prosecution launched under Section 276B.

Prosecution under Section 276B applies even if the TDS is eventually deposited late, because the offence is complete once the statutory deposit deadline is crossed, though courts have sometimes shown leniency where the delay was short and the amount was deposited with interest before any notice.

An employee whose TDS was deducted but not deposited can still claim credit only if it reflects in Form 26AS, and if it does not, the employee should complain to the jurisdictional TDS officer since the deductee is not penalised for the deductor's default under settled law.

Compounding of the offence under Section 276B is possible on payment of compounding fees before conviction, which is why most employers try to settle promptly once flagged.

Practical steps: 1) Check Form 26AS and AIS to confirm whether the deducted TDS is credited; 2) Write to the employer demanding proof of deposit and a corrected TDS return; 3) File a complaint with the jurisdictional TDS Assessing Officer if the employer does not comply; 4) Claim TDS credit only to the extent reflected in Form 26AS while filing your own return.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — remedies under Income-tax Act, 1961, Section 276B carry limitation periods, and unexplained delay weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.