NITI Aayog Working Paper Recommends Decriminalisation Framework for Trust-Based Tax Governance
SDG 16: Peace, Justice & Strong Institutions | SDG 17: Partnerships for the Goals
Institutions: NITI Aayog | Central Board of Direct Taxes (CBDT)
NITI Aayog’s working paper “Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance” (October 2025) outlines a structured roadmap to rationalise the Income-tax Act, 2025’s criminal provisions. It finds that the Act still prescribes mandatory imprisonment for 25 of 35 punishable actions across 13 sections, often without judicial discretion. Drawing on five guiding principles, harm threshold, necessity, proportionality, clarity, and review, the paper proposes decriminalising 12 procedural defaults, applying criminal penalties only for wilful or fraudulent acts, and allowing flexible sentencing for serious evasion cases. It also calls for removing the reverse burden of proof and improving drafting clarity, especially for offences in virtual digital space.
The recommendations mark a shift from enforcement-heavy compliance toward a trust-centred regime that values taxpayer dignity and legal certainty. Implementation will depend on coordination between CBDT, the Ministry of Law, and the judiciary, ensuring uniform interpretation and credible procedural safeguards.
The paper reflects a maturing tax policy philosophy, replacing deterrence by punishment with compliance through trust. It aligns India with global good practices, curbs over-criminalisation, and promotes investor confidence. By restoring judicial discretion and reducing prosecution overload, it enhances institutional credibility and the ease of doing business, particularly for smaller taxpayers.
What is trust-based governance in taxation? → An approach that encourages voluntary compliance through transparency, proportional enforcement, and limited criminal sanctions, reserved for serious, intentional violations.
Follow the full update here: Report_Tax_Policy_Working_Paper_Series_II.pdf
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2177256