NITI Aayog Proposes Decriminalising Minor Tax Offences for Trust-Based System
Government think-tank NITI Aayog has released a working paper calling for a modern, trust-based tax framework. A key recommendation is to decriminalise minor and procedural tax-related offences, reserving imprisonment for cases involving clear fraud or wilful evasion. The paper suggests removing mandatory minimum imprisonment for most offences and relying more on civil penalties. The proposed reforms aim to reduce litigation, enhance ease of doing business, and foster a fairer relationship between taxpayers and the administration.
Unpacked:
NITI Aayog proposes fully decriminalising 12 offences considered administrative or technical, such as procedural lapses, while retaining criminal liability only for core offences involving deliberate fraud, wilful tax evasion, or fabrication of evidence. The number of criminal tax offences would be reduced from 35 to 6.
The reforms would shift tax enforcement from a criminal law-based approach to a more civil, trust-based system—using civil penalties for minor infractions and reserving imprisonment only for serious, intentional fraud. This aims to reduce litigation and foster voluntary compliance.
Proponents argue decriminalisation will reduce harassment, encourage honest taxpayers, and improve ease of doing business. Critics worry it could weaken deterrence against evasion. The reform proposes to balance this by retaining strict penalties for intentional, high-value fraud.
The recommendations are expected to inform the government’s new Income Tax Act, slated for implementation from April 1, 2026. They align with the government's Viksit Bharat@2047 vision for growth, inclusion, and trust-based governance.