NITI Aayog proposes sharp cut in tax offences — only 6 to remain under criminal provisions

NITI Aayog on Friday released its second paper in the Tax Policy Working Paper Series, titled “Towards India’s Tax Transformation: Decriminalization and Trust-Based Governance.” The paper calls for reducing criminal offences under tax law from 35 to just 6, marking a significant shift toward rational and intent-driven enforcement.

The report outlines a three-tier reform strategy.

First, it recommends fully decriminalising 12 offences that are technical or procedural in nature, such as filing delays or minor reporting errors.

Second, it suggests retaining criminal liability for 17 offences only when fraudulent or mala fide intent is proven.

Third, it advises keeping prosecution for six core offences involving deliberate and high-value tax evasion, falsification of accounts, or fabrication of evidence.

Explaining the rationale, NITI Aayog CEO B. V. R. Subrahmanyam said the goal is to simplify and clarify criminal provisions to ensure fairness and precision. “Criminal provisions should be simple, precise and clear. The report has examined all 35 sections and concluded that only six should remain — those linked directly to wilful default, deliberate falsification, or fraudulent intent,” he told reporters.

According to Subrahmanyam, this working paper is part of a series of 12 tax policy papers that NITI Aayog plans to release by December 2025. The findings will inform the government’s new Income Tax Act, expected to take effect from April 1, 2026.

The paper highlights that even after the upcoming income tax law replaces the Income Tax Act, 1961, 35 actions and omissions still attract criminal liability under 13 provisions. Of these, 25 offences carry mandatory minimum jail terms, often leading to over-criminalisation of minor administrative lapses.

While these penalties were originally designed to safeguard state revenue and deter evasion, the report warns that the current breadth of criminalisation undermines taxpayer confidence and fosters fear-driven compliance. “The continuing reliance on criminal law as a routine enforcement tool, compounded by the presumption of a culpable mental state, signals an excessive dependence on prosecution rather than targeted deterrence,” the report observes.

The proposed framework envisions “trust-based governance” — replacing threat with transparency. It seeks to build a system that distinguishes between genuine mistakes and wilful evasion, allowing enforcement agencies to focus on large-scale and deliberate fraud.

If accepted, the recommendations could mark a paradigm shift in India’s tax administration, aligning it with global best practices where criminal action is reserved for grave violations, not procedural lapses.