Following the swearing-in of the new Cabinet, sources indicate that the Central Government is poised to decriminalise minor income tax offences within the next 100 days. This move, according to a senior government official, aims to replace prosecution with penalties, significantly boosting ease of doing business and fulfilling a long-standing industry demand.
“In an effort to enhance ease of doing business, the Centre is considering decriminalising certain provisions in the Income Tax Act,” the official stated. “A threshold for minor offences will be established, allowing for penalties to replace prosecution.”
Traditionally, the government has pursued prosecution for income tax offences, with no provisions currently decriminalised. The proposed changes mark a significant shift in policy, aiming to introduce compounding for minor offences and replacing prosecution with penalties.
Ongoing internal discussions are determining the threshold for compounding offences. Currently, even minor infractions, such as delayed payment of Tax Deducted at Source (TDS), can trigger criminal prosecution. This can lead to the prosecution of company directors, with potential imprisonment ranging from three months to seven years.
Industry representatives have highlighted that delayed TDS payments have caused significant issues, advocating for penalties instead of prosecution for minor offences. They argue that penalties should serve as a deterrent, treating TDS payment delays as civil liabilities rather than criminal offences.
The government’s move to decriminalise minor offences is expected to foster a more trusting relationship between taxpayers and authorities. During stakeholder discussions, the industry suggested decriminalising 50-60 provisions across various tax laws, including direct tax, GST, and customs.
In line with reducing tax litigation, the government has previously taken steps to eliminate minor disputes. The interim Budget earlier this year announced the waiver of trivial outstanding direct tax demands up to Rs 25,000 for the period up to 2009-10. Additionally, disputes involving amounts up to Rs 10,000 for the years 2010-11 to 2014-15 were also waived.
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