Decriminalisation of Minor Offences As part of the transition to the Income Tax Act, 2025, the government has proposed a significant rationalisation o
Decriminalisation of Minor Offences
As part of the transition to the Income Tax Act, 2025, the government has proposed a significant rationalisation of the prosecution framework to enhance the Ease of Doing Business and reduce the burden of litigation on taxpayers. A central pillar of this reform is the decriminalisation of specific technical defaults and the grading of remaining offences to ensure punishments are proportionate to the gravity of the crime.
Specific Decriminalised Offences
The Budget explicitly states that certain acts will no longer carry the threat of criminal prosecution:
- Non-production of books of account and related documents is being completely decriminalised.
- Requirements regarding TDS payments, specifically where the payment is made in kind, are also being decriminalised.
- For other minor offences, the law will be amended so that they attract a fine only, removing the possibility of imprisonment.
Rationalisation of Remaining Prosecutions
For offences that remain subject to prosecution, the government is introducing more lenient and flexible sentencing:
- Reduced Imprisonment: The maximum term for most offences (excluding repeated ones) is being reduced from seven years to two years. For offences that currently carry a two-year maximum, the punishment is being further reduced to six months with no minimum imprisonment required.
- Simple Imprisonment: All prosecutions are being rationalised to entail simple imprisonment rather than rigorous imprisonment.
- Conversion to Fines: Courts will be granted the power to convert simple imprisonment sentences into fines. Additionally, mandatory fines for these offences are proposed to become optional.
The Larger Context of Direct Tax Reform
These changes are part of a broader shift in tax administration towards a trust-based system and the reduction of "multiplicity of proceedings".
- Conversion of Penalties to Fees: To further move away from a punitive approach for procedural slips, penalties for technical defaults—such as failing to get accounts audited, not furnishing transfer pricing reports, or failing to furnish statements for financial transactions—will be converted into fees.
- Immunity Provisions: The government is extending frameworks for immunity from penalty and prosecution, even in cases of misreporting, provided the taxpayer pays 100% of the tax amount as additional income tax.
- Black Money Act Alignment: In a related move for small taxpayers, the Budget propose retrospective immunity from prosecution (effective from 1 October 2024) under the Black Money Act for the non-disclosure of non-immovable foreign assets valued at less than ₹20 lakh.
- Integrated Proceedings: To streamline the process, assessment and penalty proceedings will be integrated into a single common order, reducing the time and cost associated with multiple stages of litigation.
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