Niti Aayog on Friday pitched for establishing a modern tax framework for trust-based governance based on voluntary compliance, transparency and fairness.
The Aayog, in a working paper titled “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance”, said the Indian tax framework should be aligned with the Viksit Bharat@2047 vision and principles of growth, inclusion and trust. It said a paradigm shift towards a modern, predictable and citizen-centric tax system is crucial for enhancing the ease of doing business and ease of living.
According to the Aayog, the government should focus on platforms like "Transparent Taxation - Honouring the Honest" and the Jan Vishwas Act (2023), which aim to reduce the compliance burden. The paper suggested that the assessment of criminal provisions should be based on foundational principles to assess the legitimacy and necessity of criminal provisions in the Act.
The Aayog pointed out that offences must be clearly defined and periodically reviewed. It also noted that while punishment must be reserved for acts causing real, quantifiable harm, the severity of punishment must match the seriousness of the offence, avoiding excessive sanctions for minor infractions.
The paper highlights that while the 2025 Act omits several archaic offences, it continues to criminalise 35 actions and omissions across 13 provisions, most of which prescribe mandatory imprisonment. Applying a structured, jurisprudence-based assessment, the paper recommended a calibrated decriminalisation roadmap, removing imprisonment for minor procedural defaults, restricting criminal sanctions to cases involving fraud or wilful evasion and enhancing the role of civil and administrative penalties.
Of the 35 criminal offences identified, the paper suggested that 12 should be fully decriminalised and addressed through civil or monetary penalties alone, including a range of administrative and technical defaults. "17 offences should retain criminal liability only for fraudulent or malafide intent, removing criminal sanctions for good faith procedural lapses, thereby distinguishing fraud from honest error," it suggested.
The paper also pitched for removing mandatory minimum imprisonment for most offences, enabling the judiciary to exercise discretion based on individual case circumstances and gradations of culpability. The Aayog suggested that permit courts should be allowed to choose between fines and imprisonment, prioritising simple imprisonment or non-custodial measures, especially for first or low-level offences.
"Simplify and clarify offence definitions; ensure that only specifically stated, serious and intentional misdeeds attract criminal consequences," the paper said, adding that there should be mechanisms for regular review of criminal provisions to eliminate redundant or obsolete offences over time.
Releasing the working paper, Niti Aayog CEO BVR Subrahmanyam said that India’s tax reforms are entering a decisive phase marked by simplification, modernisation and the integration of trust into tax administration.
Subrahmanyam emphasised that "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". The Income Tax Act, 2025 currently criminalises 35 distinct actions and omissions. Mandatory minimum imprisonment is prescribed for 25 offences, limiting judicial discretion.
Also read: Exports to US will become more competitive: Niti Aayog
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