NITI Aayog proposes Decriminalising Tax Laws to Build a More Trust-Based Tax System

NITI Aayog has released the second paper under its NITI Tax Policy Working Paper Series. The paper is titled “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance.” It focuses on reducing the use of criminal penalties in tax laws and promoting a fair and transparent system that encourages voluntary compliance.

While releasing the paper, NITI Aayog CEO Shri B.V.R. Subrahmanyam said that India’s tax reforms are now entering a new phase focused on simplification, modernization, and building trust between taxpayers and the government. He explained that the goal is to move away from an enforcement-driven approach and focus on proportionate and fair action that maintains fiscal discipline without creating fear among taxpayers.

The paper reviews criminal provisions under the Income-tax Act, 2025. It finds that although several old offences have been removed, 35 actions and omissions under 13 provisions are still punishable with imprisonment.

The study suggests that imprisonment should be removed for minor and procedural issues and should be limited only to serious cases involving fraud or willful evasion. It also recommends strengthening civil and administrative penalties and giving courts more discretion to decide punishments.

According to NITI Aayog, these reforms will help reduce tax disputes, improve investor confidence, and make India’s tax system more predictable and transparent. The paper also highlights that building trust in tax governance will lead to higher voluntary compliance and better use of enforcement resources.

The release event was attended by officials from the Central Board of Direct Taxes (CBDT), Central Board of Indirect Taxes and Customs (CBIC), the Institute of Chartered Accountants of India (ICAI), the Department for Promotion of Industry and Internal Trade (DPIIT), and tax experts from leading firms such as Vidhi Legal, Deloitte, EY, and Lakshmikumaran & Sridharan.

The full working paper “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance” is available on the NITI Aayog website here.

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