NITI Aayog’s study advocates for a rethinking of the decriminalisation of income tax regulations.
Have you missed paying your tax deducted at source? Did you fail to file your income tax return on time? Alternatively, have you unintentionally violated a deemed seizure order? These offenses, currently classified as criminal under the Income Tax Act, might not retain that designation if the government’s forthcoming measures align with the proposals from NITI Aayog’s Consultative Group on Tax Policy.
The recommendations outlined in the newly published report titled ‘Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance’ review 35 criminal offenses, recommending full decriminalization for 12, partial decriminalization for 17 (maintaining criminal liability only for fraudulent actions), and retention of 6 offenses. For example, Section 476 of the Income Tax Act 2025, which addresses the failure to pay taxes to the Central Government as outlined in Chapter XIX-B, is suggested for complete decriminalization. Likewise, Section 477, which deals with the failure to pay tax collected at source, is also recommended for decriminalization.
Experts justify this stance by arguing that failure to remit government tax collected at source may often stem from procedural oversights rather than malicious intent. “While there is a notable impact on public revenue, the damage caused is quantifiable and recoverable. Such failures do not pose risks to public safety, national security, or order. Criminal penalties are excessive and less effective in remedying the situation. Civil or administrative measures should instead be applied to ensure quicker and more certain enforcement,” the report asserts.
In contrast, the breach of a deemed seizure order under Section 247 of the Act is viewed as a candidate for partial decriminalization. The report suggests amendments to Section 473 to penalize only those who intentionally or fraudulently contravene deemed seizure orders, as the current law fails to adequately distinguish between deliberate and inadvertent lapses. “Actions that may unintentionally contravene deemed seizure orders could be decriminalized. In such scenarios, civil or administrative penalties would prove more effective and efficient, ensuring quicker and more certain compliance,” the report states.
The six offenses where criminal penalties are to be maintained include those pertaining to the removal, concealment, transfer, or delivery of property to hinder tax recovery, the falsification of financial records, and the aid of false returns.
The report offers a comprehensive evaluation of the criminal provisions in the Income Tax Act 2025, examining their applicability, necessity, and fairness through a principled lens influenced by legal principles and international best practices. BVR Subrahmanyam, CEO of NITI Aayog, comments on the study’s reflection of the government’s forward-thinking approach to reform — minimizing the criminalization of trivial procedural defaults, reinstating judicial latitude, and concentrating enforcement efforts on intentional and fraudulent tax evasion.