NITI Aayog proposes direct tax reforms; focuses on decriminalisation and trust-based governance

NITI Aayog has proposed a collection of reforms within the Earnings Tax Act, 2025 together with decriminalisation of minor infractions, elimination of extreme necessary minimal sentences and lowering the general phrases of imprisonment to make India's tax administration extra predictable and fewer coercive.

“Decriminalisation, rationalisation of punishments, and emphasis on proportionate sanctions will collectively align India's income-tax regulation with the imaginative and prescient of a good, accessible, and trendy compliance regime,” the Aayog stated in its Tax Coverage Working Paper Collection – II: In direction of India's Tax Transformation: Decriminalisation and Belief-Primarily based Governance, launched on Friday.

The main target is to drive a transition from coercive compliance to a mannequin that empowers taxpayers, differentiates between error and fraud, and deploys the legal regulation solely when important public pursuits are at stake.
As per the report, the Earnings-tax Act, 2025 continues to criminalise 35 actions and omissions throughout 13 provisions. All these offences are punishable with imprisonment and superb, and for 25 of them, the Act prescribes necessary minimal imprisonment phrases, it stated.

“Of the 35 legal offences recognized, 12 needs to be totally decriminalised and addressed via civil or financial penalties alone, together with a variety of administrative and technical defaults,” it steered.

The Aayog additional stated 17 offences ought to retain legal legal responsibility just for fraudulent or malafide intent whereas six core offences, involving deliberate, high-value, and injurious misconduct (similar to orchestrated tax evasion or fabrication of proof), ought to stay legal with proportionate punishments. “Take away necessary minimal imprisonment for many offences, allow courts to decide on between fines and imprisonment, restore the prosecution's obligation to exhibit wilful or fraudulent intent past cheap doubt, simplify and make clear offence definitions and set up mechanisms for normal overview of legal provisions to remove redundant or out of date offences over time,” it additional steered.The Aayog is of the view that implementation of those suggestions will embed belief on the coronary heart of India's tax administration, encouraging voluntary compliance and guaranteeing that legal prosecution stays the exception, not the norm.