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India Set to Overhaul Tax laws, Reducing Criminal Offenses to Just Six
A sweeping reform of India’s tax code is underway, with a new proposal aiming to dramatically reduce the number of actions considered criminal offenses – from 35 to just six. The recommendations, released on Friday by NITI Aayog in its latest Tax Policy Working Paper, signal a shift towards a more trust-based governance model and a focus on serious financial crimes.
The proposed changes represent a significant departure from the current system, where a broad range of actions, including procedural lapses and delayed filings, can trigger criminal penalties. According to the report, the reforms will be implemented in three phases. Twelve offenses deemed administrative or technical in nature will be fully decriminalized. An additional seventeen will retain criminal liability only when proven to involve fraudulent or malicious intent. prosecution will be reserved for six core offenses involving deliberate and high-value tax evasion or the fabrication of evidence.
“Criminal provisions should be simple, precise and clear, which means good drafting,” a senior official stated during a briefing. “This report has tackled all 35 sections and persistent that only six need to be retained fully, as they directly relate to willful default, tax evasion, or falsification of accounts.”
The recommendations are part of a larger series of twelve tax policy papers NITI Aayog plans to publish by December 2025. These insights are expected to directly influence the drafting of a new Income Tax act, scheduled to come into affect on april 1, 2026.
Currently, despite the new income tax law replacing the 1961 Act and omitting thirteen offenses, 35 actions still carry criminal liability under thirteen provisions. The report highlights that all these offenses are punishable by imprisonment and fines, with mandatory minimum jail terms in 25 cases.
However, the paper argues that the current breadth of criminalization, coupled with a presumption of guilt, leads to an overreliance on criminal law as a routine enforcement tool. “While these measures are intended to safeguard state revenue and deter evasion, the continuing breadth of criminalisation…signals an ongoing reliance on criminal law as a routine enforcement tool rather than a targeted last resort,” the report explained.
The proposed reforms align with a principle-based framework, drawing on jurisprudence and global best practices. The analysis concludes that many current offenses – such as late filing or minor procedural errors – do not substantially harm fiscal interests and are better addressed through civil penalties. The report specifically calls for the removal of mandatory imprisonment, restoring judicial discretion in sentencing, and eliminating the “reverse burden of proof,” which currently places the onus on taxpayers to prove their innocence.
International examples from the US, the UK, and Australia demonstrate that mature tax systems typically reserve prosecution for deliberate fraud, handling routine non-compliance through administrative or monetary penalties. India, the report suggests, could benefit from adopting a similar trust-based model.
These recommendations build upon existing government initiatives like the Transparent Taxation platform and the Jan Vishwas Act (2023), both aimed at simplifying compliance and reducing the criminalization of business laws.
“Criminal sanctions, when indiscriminately imposed, stimulate a climate of fear and inhibit genuine entrepreneurial activity,” noted Sandeep Jhunjhunwala, a tax partner at Nangia Andersen LLP. “Decriminalization could enhance voluntary compliance, streamline enforcement, and align regulatory frameworks with principles of proportionality and economic pragmatism.”
The proposed overhaul represents a basic shift
