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. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

Can an employer be prosecuted for not depositing TDS deducted from salary is governed in India primarily by Income-tax Act, 1961, Section 276B, Income-tax Act, 1961, Section 201 and Income-tax Act, 2025. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

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.

What to do next: 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 — most remedies under Income-tax Act, 1961, Section 276B carry limitation periods, and a delay you cannot explain 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 this practice area.