NITI Aayog Advocates Tax Decriminalisation and Trust-Based Governance Reforms

NITI Aayog has released the 2nd working paper in its Tax Policy Series, emphasising a shift from punitive to trust-based tax administration. The paper, titled “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance,” outlines key reforms under the Income-tax Act, 2025, to simplify compliance mechanisms and boost investor confidence.

Decriminalisation for Efficient and Equitable Tax Compliance

The working paper provides a critical analysis of the criminal provisions within the Income-tax Act, 2025. Despite eliminating several outdated offences, the Act retains criminalisation of 35 actions across 13 sections, most with mandatory imprisonment. 

The report suggests removing imprisonment for procedural lapses and limiting criminal proceedings to cases of fraud or deliberate evasion, coupled with strengthened civil penalties. This reform aims to encourage voluntary compliance while safeguarding fiscal interests.

A Shift Towards Proportionate and Transparent Enforcement

The paper introduces a principle-based framework for evaluating the necessity and proportionality of tax-related criminal provisions. By transitioning to fair and proportionate enforcement strategies, the approach seeks to reduce legal ambiguity and minimise undue taxpayer harassment. It supports enhanced judicial discretion and reduced reliance on imprisonment for minor offences.

Stakeholder Collaboration and Consultative Input

The consultative process for this working paper included inputs from CBDT, CBIC, ICAI, DPIIT and tax experts from top advisory firms. The NITI Aayog Consultative Group on Tax Policy (CGTP), led by Dr P.S. Puniha and Shri Sanjeet Singh, ensured structured coordination with relevant stakeholders to align the proposals with global standards and domestic priorities.

Read More: NITI Aayog Tax Working Paper Targets Predictable Framework for Foreign Investors in India!

Conclusion

NITI Aayog's working paper paves the way for transforming tax enforcement from punitive to principled. Decriminalisation of minor violations, judicial discretion, and trust-based systems signify a pivotal shift towards a balanced, modern tax ecosystem in India.

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