NITI Aayog pitches for decriminalisation of minor tax offenses

‘Burden of proof’ should shift from taxpayers to tax authorities.

New Delhi: The government think-tank NITI Aayog has proposed a series of reforms in Income Tax Act, 2025, including decriminalisation of 12 direct tax-related offences linked to administrative, technical, and procedural defaults.

In its second edition of ‘Tax Policy Working Paper’, the NITI Aayog suggested that criminal punishment should be only for conduct involving fraudulent or mala fide intent.

The paper noted that while several archaic offences from the old legislation have been removed in the Income Tax Act, 2025, it continues to criminalise 35 actions and omissions across 13 provisions, most of which prescribe mandatory imprisonment.

“Of the 35 criminal offences identified, 12 should be fully decriminalised and addressed through civil or monetary penalties alone, including a range of administrative and technical defaults,” it said.

It added that the remaining 17 offences should retain criminal liability only for fraudulent or mala fide intent, removing criminal sanctions for good faith procedural lapses—thereby distinguishing fraud from honest error.

However, the government think-tank has suggested retention of criminal provisions for serious misconduct involving deliberate, high-value, and injurious misconduct, such as orchestrated tax evasion or fabrication of evidence.

The paper titled “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance” also advocated for shifting the “burden of proof” with regards to fraudulent intent upon tax authorities rather than taxpayers, similar to criminal law.

“Normally, in a typical criminal litigation in a court of law, the burden of proof is on the police to prove that there was an offence. Similarly, we are (suggesting) reversing it back, saying it should be on tax authorities,” said BVR Subrahmanyam, CEO of NITI Aayog.

Referring to the international best practices, NITI Aayog CEO noted that mature tax systems rely on trust-based governance, reserving criminal prosecution for deliberate and egregious non-compliance while addressing procedural or technical defaults through administrative and civil measures.

“As India transitions from enforcement-driven compliance to trust-based governance, the focus must shift to proportionate, fair, and transparent enforcement mechanisms that empower taxpayers while protecting fiscal integrity,” he said.

The report also suggested removal of the provisions in the Income Tax Act regarding the mandatory minimum terms of imprisonment.

“Permit courts to choose between fines and imprisonment, prioritising simple imprisonment or non-custodial measures, especially for first or low-level offences,” NITI Aayog said in its recommendations to the government.