NITI AAYOG CALLS FOR DECRIMINALISING 12 TAX OFFENCES, URGES SHIFT TO TRUST-BASED TAX REGIME
NITI Aayog has called for the decriminalisation of 12 tax offences and rationalisation of punishments under the new Income-tax Act, 2025, marking a major shift towards a more trust-based and transparent tax system.
The government think tank on Friday released its second working paper titled “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance.” The paper called for India’s direct tax regime to move away from fear-driven enforcement and instead promote voluntary compliance and fairness. It argues that excessive reliance on criminal law to ensure tax compliance has resulted in unnecessary litigation, fear among taxpayers, and a growing trust deficit.
The paper follows the first in NITI Aayog’s Tax Policy Working Paper Series, which focused on bringing greater certainty to the rules governing permanent establishment and profit attribution for foreign investors in India, as part of a broader effort to advance evidence-based tax reforms.
Three-tier reform plan
The report proposes a clear three-tier approach. It recommends that 12 offences, mainly procedural or technical defaults, should be completely decriminalised and handled through civil or monetary penalties. Another 17 offences should attract criminal prosecution only if there is proven fraudulent or malicious intent. The report also suggests retaining criminal penalties for six serious offences involving deliberate, large-scale misconduct such as fabricated records and wilful tax evasion.
In addition, NITI Aayog has proposed the removal of mandatory imprisonment for most offences, allowing courts to decide the punishment based on the seriousness of the case. It also calls for restoring the prosecution’s duty to prove intent beyond reasonable doubt, replacing the current presumption of guilt under the law.
The working paper noted that while the Income-tax Act, 2025 has already omitted 13 outdated offences, 35 actions and omissions continue to be criminalised, including several minor infractions that carry mandatory jail terms.
Team: CreditMoneyFinance.com