NITI Aayog Urges Decriminalisation of Minor Tax Offences Under New Income Tax Act, 2025

In a major policy push toward taxpayer-friendly governance, NITI Aayog has proposed decriminalising several minor offences under the new Income-tax Act, 2025, urging a shift from a punitive tax regime to one grounded in trust, fairness, and voluntary compliance.

The think tank's latest working paper, "Towards India's Tax Transformation: Decriminalisation and Trust-Based Governance," calls for criminal prosecution to be reserved only for serious offences like fraud or wilful evasion, while procedural or technical lapses, such as non-filing of returns or failure to produce documents, should attract civil or administrative penalties instead.

According to NITI Aayog's analysis, the old Income-tax Act, 1961, contained 54 criminal offences across 15 provisions, many targeting minor procedural lapses. The new Income-tax Act, 2025, reduces this number to 35 offences under 13 provisions, and the think tank further recommends decriminalising 12 of these to ease taxpayer anxiety and reduce unnecessary litigation.

The paper outlines a principle-based framework for criminal tax law, emphasising five key tenets - proportionality, subsidiarity, precision, protection of core societal values and regular review. It argues that criminal law should be a measure of last resort, applicable only when violations cause direct and substantial harm to fiscal integrity or the rule of law.

Experts say the move could significantly improve the ease of doing business, curb overcriminalisation and unclog courts burdened with tax-related prosecutions. "Indiscriminate criminal sanctions create fear and stifle entrepreneurship," one tax expert noted, supporting the call for balanced enforcement.

The recommendations also align with the government's broader decriminalisation agenda under the Jan Vishwas (Amendment of Provisions) Bill, 2025, which seeks to classify minor economic offences as civil infractions rather than criminal acts.

If adopted, NITI Aayog's proposals could pave the way for a predictable and transparent tax environment, where enforcement focuses on wilful defaulters while honest taxpayers are encouraged to comply voluntarily. The move represents a crucial step toward modernising India's tax governance and restoring trust between taxpayers and the state.