NITI Aayog study proposes deeper decriminalisation of income tax laws

Forgot to pay tax deducted at source? Failed to file income return within the specified period? Unintentionally contravened the deemed seizure order? Well, all these offences, treated as of criminal nature under the current Income Tax Act, may no longer be criminal if the government agrees to the recommendations made by Niti Aayog’s Consultative Group on Tax Policy.

The recommendations, part of a just-released report titled ‘Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance’, cover 35 criminal offences of which 12 offences are proposed to be completely decriminalised, 17 offences partially decriminalised (criminal liability retained only for fraudulent and malafide conduct), and 6 offences retained. Thus, Section 476 of the Income Tax Act 2025, which talks of failure to pay tax to the credit of the Central Government under Chapter XIX-B, has been proposed to be completely decriminalised. Similarly, it has been proposed to decriminalise Section 477 (failure to pay tax collected at source) too.

The rationale given by the experts in this case is that failure to pay the credit of the government tax collected at source may be due to procedural and unintentional lapses with no malafide intent. “Even as there is a direct connection with harm to public revenue, the harm is measurable and reparable through recovery. This failure does not threaten public safety, national security, or law and order. Criminalisation is disproportionate and would not be as effective in repairing the harm. Enforcement should focus on civil or administrative measures which offer greater swiftness and certainty in enforcement”, the report says.

However, contravention of a deemed seizure order made under section 247 of the Act has been considered only for partial decriminalisation.  The report proposes to amend Section 473 to clearly criminalise only intentional or fraudulent contravention of the order of deemed seizure, as the current provision does not clearly differentiate between intentional actions and unintentional or procedural lapses. “Non-malafide actions that technically contravene deemed seizure orders may be decriminalised. In such cases, civil or administrative penalties may be more effective and efficient, offering greater swiftness and certainty in enforcement”, the report says.

The six offences where the report insists on retaining criminal provisions include those that seek action against removal, concealment, transfer or delivery of property to prevent tax recovery, falsification of books of account or document, etc and abatement of false return.

The report provides a structured analysis of the criminal provisions within the Income-tax Act, 2025, assessing their scope, necessity, and proportionality through a principled framework grounded in jurisprudence and global best practices, BVR Subrahmanyam, CEO NITI Aayog, says. “The study highlights the government’s progressive approach to rationalisation — reducing criminalisation of minor procedural defaults, restoring judicial discretion, and focusing enforcement efforts on wilful and fraudulent tax evasion”, he adds.