NITI Aayog has called for a major reform of India’s tax enforcement, proposing the decriminalisation of most offences under the Income Tax Act. The aim is to transition to a trust-based tax regime that focuses on intent rather than intimidation.
Thank you for reading this post, don't forget to subscribe!The Decriminalisation Plan: 35 Down to 6
In its working paper, “Towards India’s Tax Transformation: Decriminalization and Trust-Based Governance,” NITI Aayog recommends cutting the number of criminal tax offences from 35 to just six core provisions, signaling a move toward more rational enforcement.
The proposal follows a three-tier strategy:
- Tier 1: Fully Decriminalise 12 Offences: These are minor, technical, or procedural lapses like filing delays or small reporting errors.
- Tier 2: Intent-Based Liability for 17 Offences: Criminal action would be retained for these only if fraudulent or mala fide (bad faith) intent is proven.
- Tier 3: Retain Criminality for 6 Core Offences: Only deliberate, high-value offences involving wilful default, deliberate falsification of accounts, or fabrication of evidence would remain subject to prosecution.
Rationale: Focusing on Fraud, Not Fear
NITI Aayog CEO B. V. R. Subrahmanyam emphasized that the goal is to simplify and clarify criminal provisions, reserving them for cases directly linked to wilful default and fraudulent intent.
The report highlights that the current system, with its 35 offences (25 carrying mandatory minimum jail terms), often results in the over-criminalisation of administrative lapses, which undermines taxpayer confidence and fosters a fear-driven compliance environment.
The proposed framework envisions “trust-based governance,” allowing enforcement agencies to concentrate their resources on addressing large-scale and deliberate fraud, aligning India with international best practices where criminal penalties are reserved for grave violations.
These findings will inform the new Income Tax Act, which is anticipated to take effect from April 1, 2026.
Would you like to know more about the timeline for NITI Aayog’s planned Tax Policy Working Paper Series?
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