NITI Tax Policy Working Paper Series-II: Towards India’s Tax Transformation: Decriminalisation and Trust-Based Governance

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Towards India’s Tax Transformation: Decriminalisation and
Trust-Based Governance
Copyright@ NITI Aayog, 2025
Published: October 2025
NITI Aayog
Government of India
Sansad Marg, New Delhi-110001, India
Towards India’s Tax Transformation:
Decriminalisation and Trust-Based Governance Foreword
I
ndia’s vision of Viksit Bharat@2047 is anchored in a governance
philosophy that combines growth, inclusion, and trust. Central to
this transformation is the reimagining of India’s direct tax framework
— from one historically built on enforcement and deterrence to
one that promotes voluntary compliance, simplicity, and fairness. The
Government of India’s ongoing reform agenda, reflected in initiatives
such as the Transparent Taxation – Honouring the Honest platform, the
Jan Vishwas Act (2023), and the enactment of the Income-tax Act,
2025, underscores this paradigm shift towards a modern, predictable,
and citizen-centric tax system.
This NITI Aayog’s Working Paper, NITI Tax Policy Working Paper Series-II
“Towards India’s Tax Transformation: Decriminalisation and Trust-Based
Governance,” examines the evolving contours of India’s tax policy in the
context of these reforms. It provides a structured analysis of the crim-
inal provisions within the Income-tax Act, 2025, assessing their scope,
necessity, and proportionality through a principled framework ground-
ed in jurisprudence and global best practices. The study highlights the
government’s progressive approach to rationalisation — reducing crimi-
nalisation of minor procedural defaults, restoring judicial discretion, and
focusing enforcement efforts on wilful and fraudulent tax evasion.
International experience shows that mature tax systems rely on trust-
based governance, reserving criminal prosecution for deliberate and
egregious non-compliance while addressing procedural or technical de-
faults through administrative and civil measures. By aligning with this
approach, India can not only improve compliance outcomes and ease
of doing business but also foster a culture of trust and cooperation be-
tween taxpayers and the administration.
The recommendations presented in this Working Paper support this vi- sion by proposing a calibrated framework for decriminalisation, rationalisation of
punishments, and legislative clarity. These reforms will help reduce litigation, en-
hance investor confidence, and lead to greater voluntary compliance and higher
revenue collection by ensuring that enforcement mechanisms remain proportion-
ate and fair.
I congratulate Dr P.S. Puniha and other members of the Consultative Group on Tax
Policy (CGTP) and all other contributors for advancing this important dialogue on
trust-based governance in India’s tax system. Their rigorous analysis and balanced
recommendations will serve as a valuable reference for policymakers, tax admin-
istrators, and legal experts working to strengthen India’s evolving direct tax archi-
tecture.
BVR Subrahmanyam
CEO
NITI Aayog Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 6
Executive Summary
The Government of India is driving a strategic reform of the direct tax regime, pivoting towards a
philosophy of Trust-Based Governance and a compliance-first culture. This significant paradigm shift
is underscored by the recent enactment of the Income-tax Act, 2025, which features comprehensive
simplification—removing archaic provisions, clarifying language, and introducing a cleaner framework
to enhance accessibility. Complementing this legal overhaul are key administrative initiatives, notably
the “Transparent Taxation – Honouring the Honest” platform and the Jan Vishwas Act (2023), which
collectively seek to substantially reduce the overall compliance burden. Supporting the government’s
overarching thrust in reforming the direct tax regime this NITI Aayog Working Paper on report seeks
to provide a comprehensive and critical analysis of the criminal provisions within the Income-tax
Act, 2025, mapping the present extent of criminalisation, documenting omissions and modifications,
and recommending a trust-based regulatory transition for India’s direct tax regime. Recognizing
the evolving policy landscape which stresses ease of business, citizen-centricity, and the need to
move away from “fear-based” enforcement, the study evaluates each criminal provision through
a principled criminal law-making framework rooted in jurisprudence, comparative regulatory best
practices, and expert recommendations. Its central premise is that decriminalisation, rationalisation
of punishments, and emphasis on proportionate sanctions will collectively align India’s income-tax
law with the vision of a fair, accessible, and modern compliance regime.
Mapping the Criminal Landscape
India’s legislative history reflects a longstanding reliance on criminal law to enforce tax compliance,
often criminalising even minor infractions, procedural omissions, or technical non-compliances. The
Income Tax Act, 1961 criminalised 54 actions and omissions through 15 provisions, many of which
pertained to regulatory infractions. The accompanying legal and social consequences—ranging from
disqualification from public employment, denial of passports or visas, to restrictions on voting—were
widely considered excessive when imposed on purely procedural defaults.
By contrast, the Income-tax Act, 2025 marks significant progress, omitting 13 offences (such as failures
in administrative notifications by company liquidators or receivers) but continues to criminalise 35
actions and omissions across 13 provisions. All these offences are punishable with imprisonment and
fine, and for 25 of them, the Act prescribes mandatory minimum imprisonment terms. While these
measures are intended to safeguard state revenue and deter evasion, the continuing breadth of
criminalisation, compounded by a presumption of culpable mental state, signals an ongoing reliance
on criminal law as a routine enforcement tool rather than a targeted last resort.
Analytical Framework and Methodology
The report adopts a rigorous principled framework for criminal law-making, drawing on judicial
precedents, recommendations of the Law Commission, and global best practices. This model asserts
five core principles:
1. Criminalisation must protect a fundamental societal value: Only conduct that threatens core
values like governance, public safety, law, and fiscal security should attract criminal sanctions.
2. A clear, direct, and substantial harm is required: Punishment must be reserved for acts causing
real, quantifiable harm, not hypothetical or indirect inconvenience.
3. Criminal law must be the only effective solution: Civil, regulatory, or administrative measures
should suffice for cases of non-malicious, procedural, or technical lapses. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 7
4. Proportionate response: Severity of punishment must fit the seriousness of the violation, avoiding
excessive sanctions for minor infractions.
5. Clarity, precise drafting, and periodic review: Offences should be clearly defined, fit-for-purpose,
and subject to periodic legislative review to prevent redundancy or overreach.
This framework enabled the deconstruction of aggregate offences into their individual acts and
omissions, allowing a nuanced evaluation of whether each criminal provision is justified, whether
rationalisation is necessary, or whether alternative penalties are preferable.
Main Findings and Key Recommendations
Application of the framework reveals a persistent over-criminalisation in several domains. Notably,
certain administrative and procedural faults—such as minor failures to comply with orders, or technical
defaults in furnishing electronic assistance—still attract criminal penalties, despite posing no real risk
to fiscal security or public interest. Conversely, serious conduct that is demonstrably fraudulent or
wilfully evasive justifies retention of criminal penalties, but even here, punishments can often lack
proportional gradation. The Act’s approach to intent—frequently presuming culpability rather than
requiring proven malafides—further risks unfair prosecution for inadvertent defaults.
International best practices, such as those in the United States, United Kingdom, Australia and others
have been examined. They largely demonstrate sharply defined thresholds for prosecution. Only
wilful, fraudulent, or deliberate malfeasance triggers criminal action, while civil penalties address all
other non-compliances, supporting a more targeted and trust-based enforcement framework.
Anchored in the principle-based assessment, the report proposes a transformative trust-based
compliance framework, with the following headline reforms:
a. Complete Decriminalisation: Of the 35 criminal offences identified, 12 should be fully
decriminalised and addressed through civil or monetary penalties alone, including a range
of administrative and technical defaults.
b. Selective Criminalisation: 17 offences should retain criminal liability only for fraudulent
or malafide intent, removing criminal sanctions for good faith procedural lapses—thereby
distinguishing fraud from honest error.
c. Retention of Criminal Provisions for Serious Misconduct: Six core offences, involving
deliberate, high-value, and injurious misconduct (such as orchestrated tax evasion or
fabrication of evidence), should remain criminal with proportionate punishments.
Further recommendations include:
a. Removal of Mandatory Imprisonment: Remove mandatory minimum imprisonment for most
offences, enabling the judiciary to exercise discretion based on individual case circumstances
and gradations of culpability.
b. Flexible Sentencing and Alternative Sanctions: Permit courts to choose between fines and
imprisonment, prioritising simple imprisonment or non-custodial measures, especially for
first or low-level offences.
c. Omission of Reverse Burden of Proof: Restore the prosecution’s duty to demonstrate wilful
or fraudulent intent beyond reasonable doubt, consistent with Indian criminal law standards
and global best practices. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 8
d. Drafting Reform: Simplify and clarify offence definitions; ensure that only specifically stated,
serious, and intentional misdeeds attract criminal consequences.
e. Periodic Legislative Review: Establish mechanisms for regular review of criminal provisions
to eliminate redundant or obsolete offences over time.
Policy Implications and Conclusion
These structural reforms are pivotal for realising the government’s vision of a modern, user-friendly,
and fair tax administration. The focus is to drive a transition from coercive compliance to a model
that empowers taxpayers, differentiates between error and fraud, and deploys the criminal law only
when vital public interests are at stake. Rationalised punishments, restoration of judicial discretion,
and targeted criminalisation will lessen the burden on the criminal justice system while protecting
fiscal interests and upholding constitutional rights.
Ultimately, implementation of these recommendations will embed trust at the heart of India’s tax
administration, encouraging voluntary compliance and ensuring that criminal prosecution remains the
exception, not the norm. The resulting system will be robust, credible, and aligned with international
standards for direct tax governance. This report aims to support and realise the government’s vision
of shaping a direct tax regime that is not only modern and accessible but also fair, balanced, and
aligned with the broader vision of moving towards trust-based governance. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 9
TABLE OF CONTENTS
1. Introduction. .......................................................................................................................11
2. Methodology.....................................................................................................................14
3. Framework for Criminal Law Making & Decriminalisation:
A Principle-Based Assessment Model........................................................................ 16
4. Reviewing the Criminal Provisions of the Income-tax Act, 2025 .........................21
5. International Best Practices: Reserving Criminal Sanctions
for Serious Violations .....................................................................................................34
6. Recommendations For a Trust-Based Framework...................................................37
7. Conclusion. ........................................................................................................................56
Annexure I: Analysis of the Income-tax Act, 2025 – A Primer..................................................................ii
Annexure II: Guidance note for prosecution of income-tax cases..........................................................xv
Annexure III: Criminal provisions and corresponding penalty provisions
in the Income-tax Act, 2025...........................................................................................................................xix
Annexure IV: Sample draft provisions..........................................................................................................xxi Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 10 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 11
1. Introduction
The Government of India is spearheading a strategic reform of the direct tax regime, fundamentally
shifting to a philosophy of Trust-Based Governance and a compliance-first culture. This pivotal
change is cemented by the new Income-tax Act, 2025 (‘Act’), which replaces the Income-tax Act,
1961. The 2025 Act introduces comprehensive simplification—removing archaic provisions, clarifying
language, and creating a cleaner, more accessible framework.
This legal overhaul is reinforced by key administrative initiatives like the “Transparent Taxation –
Honouring the Honest” platform and the Jan Vishwas Act (2023). These efforts are part of a broader
regulatory reform spanning years, driven by the goal of enhancing the ease of doing business and
ease of living through simplified legal procedures, digitization, and the decriminalization of minor
offenses.
At the heart of these reforms is the recognition that excessive regulation, especially the use of
criminal law for minor or technical non-compliance, generates fear, uncertainty, and a trust deficit
between citizens and the State. While the Income-tax Act, 2025 is a significant modernization, its full
transformative potential hinges on also addressing the current overuse of criminal law in enforcing
tax compliance.
Using criminal law to enforce compliance
Efficient tax administration is essential for the financial stability of the country and for financing
welfare and developmental initiatives. Equally important is the fair and proportionate application
of criminal law within the tax system — a critical reflection of the system’s trust in its citizens, and
essential for maintaining citizens’ trust in the system. Together, these objectives ensure that taxes are
filed and collected in a manner that is effective, efficient, and fair.
Despite this, the 1961 Act relied heavily on criminal law to enforce compliance. It criminalises 54
actions and omissions through 15 provisions, many of which are minor regulatory infractions. This
reliance on criminal law to secure tax compliance is grounded in the belief that monetary penalties
are insufficient deterrents. In fact, the Direct Taxes Enquiry Committee in its 1971 Report stated
that “In the fight against tax evasion, monetary penalties are not enough… Prospect of landing in
jail, on the other hand, is a far more dreaded consequence to operate in terrorem upon the erring
taxpayers... a conviction in a court of law is attended with several legal and social disqualifications
as well… we consider it necessary for the Department to evolve a vigorous prosecution policy and to
pursue it unsparingly.”
1

This approach has, however, undergone considerable change since then. Criminalisation of minor
infractions is not only now seen as excessive and disproportionate, but also as impeding ease of doing
business and ease of living.
2
This broader policy shift is reflected in the ongoing decriminalisation
exercise under Jan Vishwas 1.0 and 2.0, as well as in the larger deregulation efforts as stressed upon
in the Union Budget 2025. It is also seen more specifically in the context of evolving tax enforcement,
through multiple circulars
3
issued by the Central Board of Direct Taxes (‘CBDT’). These circulars
represent a shift in the tax administration policy, clearly emphasising that prosecution should not be
1 Direct Taxes Enquiry Committee, Final Report (December 1971) 29
<https://indianculture.gov.in/reports-proceedings/direct-taxes-enquiry-committee-final-report> accessed on 23 July 2025
2 Press Information Bureau, ‘DPIIT working on Jan Vishwas 2.0 to further give a boost to “Make in India”, (28 September 2024) <https://www.
pib.gov.in/PressReleaseIframePage.aspx?PRID=2059868> accessed on 24 July 2025
3 Manual on Prosecution and Compounding 2020 - Volume I, Income-tax Department, New Delhi <https://nadt.gov.in/writereaddata/Menu-
ContentImages/Manual_on_Prosecution_and_Compounding_2020_Vol_I_Part1638532041776204013.pdf> accessed on 9 April 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 12
pursued for minor non-compliances, such as failure to submit documents, and that compounding
should also be pursued vigorously where possible. Instead, criminal sanctions must be reserved for
serious cases involving significant fraud and fabrication of evidence. This change in enforcement
approach strengthens the differentiation between minor regulatory violations and criminal conduct.
This distinction carries significant implications for the individual. A conviction or even being
prosecuted can lead to disqualification from public employment
4
, restrictions on the right to vote
5
,
loss of eligibility to contest elections, denial or revocation of passports
6
and visas
7
, and disqualification
from professional practice
8
. Some of these consequences of criminalisation are particularly harsh
when imposed for procedural or technical defaults rather than malafide and fraudulent behaviour
that causes clear and substantial harm to life, liberty, property, national security etc.
In recognition of this, the Income-tax Act, 2025 takes some significant steps to address this
overreliance on criminalisation by omitting and thus decriminalising 13 offences, such as:
a. Liquidator of any company being wound up failing to give notice to the Assessing Officer of
appointment within thirty days of such appointment. [Section 276A(i) r/w Section 178(1)(a),
Income Tax Act, 1961]
b. Failing to surrender or deliver possession of the property to the appropriate authority within
fifteen days in respect of which order has been made by the appropriate authority. [Section
276AB r/w Section 269UE(2), Income Tax Act, 1961]
c. Receiver of any assets of any company failing to give notice to the Assessing Officer of
appointment within thirty days of such appointment. [Section 276A(i) r/w Section 178(1)(b),
Income Tax Act, 1961]
d. Liquidator of any company failing to set aside an amount equal to the amount notified by the
Assessing Officer. [Section 276A(ii) r/w Section 178(3)(b), Income Tax Act, 1961]
There is, however, further scope to firmly embed both the CBDT’s practice and the broader
decriminalisation policy within the legislative framework. In fact, the Act still continues to criminalise
35 actions and omissions across 13 provisions. These include criminalisation of acts such as failing to
pay tax deducted at source
9
and failing to provide reasonable technical assistance for inspection of
books of account or other documents
10
.
The Act also continues to shift the burden of proof onto the accused by presuming a culpable mental
state
11
, a standard typically reserved for stringent criminal laws like the Protection of Children from
Sexual Offences Act, 2012 (POCSO) and the Narcotics, Drugs, and Psychotropic Substances (NDPS)
Act, 1985. This approach further reinforces the Act’s reliance on harsh criminal measures rather than
aligning with a more trust based regulatory framework.
4 Department of Personnel & Training, 2016, ‘Attestation form for verification of character and antecedents prior to appointment in Govern-
ment service’, Office Memorandum Issued Vide F.No. 18011/2(s)/2016-Estt(b) Dated 30.03.2016, <https://archive.pib.gov.in/docu-
ments/rlink/2016/mar/p201633101.pdf> accessed on 24 July 2025.
5 Section 62(5), The Representation of People Act, 1951
6 Section 6(2)(f), The Passports Act, 1967
7 Section 212(a)(2), The Immigration and Nationality Act- Individuals seeking to enter the United States of America who are either convicted
or are being prosecuted may be denied entry or have their visa application refused on such a ground.
8 Section 24A, The Advocates Act, 1961
9 Section 476, Income-tax Act, 2025.
10 Section 474, Income-tax Act, 2025.
11 Section 490(1), Income-tax Act, 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 13
Snapshot of the scope and extent of criminalisation
35 actions and omissions are proposed to be criminalised under the Income-tax Act, 2025.
Continued reliance on imprisonment
All offences are punishable with imprisonment and fine.
Terms of maximum imprisonment range from 1 year to 7 years.
3 offences are
punishable with a
maximum of 1 year of
imprisonment
17 offences are
punishable with a
maximum of 2 years of
imprisonment
1 offence is punishable
with a maximum of 3
years of imprisonment
13 offences are punishable
with a maximum of 7 years
of imprisonment
Limited judicial discretion
Mandatory minimum imprisonment, with terms ranging from 3 months to 6 months, is prescribed for 25
offences.
Compulsory prescription of rigorous form of imprisonment for all offences, except one.
Judicial discretion, to choose whether a fine is to be imposed or not along with imprisonment, is
available in only one offence.
Stringent punishments for repeat offenders
19 offences carry an enhanced punishment for second and subsequent commission.
All repeat offences are punishable with a maximum of 7 years of imprisonment and a mandatory
minimum of 6 months imprisonment.
Mandatory and unspecified fines
While fines are prescribed mandatorily, their quantum is not specified.
34 offences carry mandatory
fines in addition to
imprisonment.
Only one offence allows the
court discretion in imposing
fines.
The quantum of fines for all
offences has also been left to the
court’s discretion. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 14
2. Methodology
To understand the true extent and scope of criminalisation in the Act, and to assess the value and
necessity of criminalising each provision, a two-step methodology has been adopted. Following this
approach all criminal provisions in the Act have been mapped and the specific actions and omissions
that have been criminalised have been identified [may please see Annexure I for the primer].
The methodology also facilitates a principled evaluation of whether criminalisation is justified by
examining each case individually, on merits.
Review and identification of criminal provisions
Identification of all criminal provisions.
The Act has been analysed to identify all criminal provisions. This included reviewing compliances
that attract civil penalties as well as criminal sanctions.
Simplification of offences
Laws often criminalise multiple actions and omissions within a single provision, making it difficult
to determine the exact scope of criminalisation. To address this, these sections and sub-sections
were deconstructed, and listed so that each distinct criminalised action and omission is brought out
separately.
For example, Section 475 of the Income-tax Act, 2025 reads as ‘Whoever, fraudulently removes,
conceals, transfers or delivers to any person, any property or any interest therein, with the intent to
prevent such property or interest from being taken in execution of a certificate as prescribed, shall
be punishable with rigorous imprisonment for a term which may extend to 2 years and shall also be
liable to fine.’ This section was broken down into the following crimes:
1. Fraudulently removing any property or interest to any person, with the intent to prevent such
property or interest from being taken in execution of a certificate.
2. Fraudulently concealing any property or interest to any person, with the intent to prevent
such property or interest from being taken in execution of a certificate.
3. Fraudulently transferring or delivering any property or interest to any person, with the intent
to prevent such property or interest from being taken in execution of a certificate.
This deconstruction and simplification enables an accurate assessment of all offences for the
purposes of decriminalisation or the rationalisation of punishments. This is particularly important as
different offences grouped within a single provision may not necessarily warrant criminalisation or
identical punishments.
Cross-referencing of offences
In the Act, offences and their corresponding punishments are often defined and punished in separate
provisions. In such cases, the punishment provision typically refers back to the definition, requiring
both to be read together. Offences and their corresponding punishments have been documented
after accounting for such drafting practices. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 15
Assessment of criminal provisions
To carry out a principle-based assessment of each criminal provision, a clear guiding framework is
essential. To do this, the foundational principles have been identified that guide criminal law-making
in India. These principles form the basis on which the legitimacy and necessity of criminal provisions
in the Act can be assessed. This helped in identifying offences suitable for decriminalisation or
rationalisation of punishments. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 16
3. Framework for Criminal Law Making & Decriminalisation: A
Principle based Assessment Model
To understand India’s approach to criminal lawmaking the judicial precedents, reports of expert
committees, and recommendations of the Law Commission of India have been analysed. This analysis
highlights the broad contours of India’s policy of criminalisation.
Underlining that criminal law is an inherently harsh and coercive tool in the hands of the State, these
precedents have consistently emphasised that it should be used sparingly, and only when essential
to protect core values of the society and the political order.
For instance, in Federation of Obstetrics & Gynaecological Societies of India v. Union of India
12
, the
Supreme Court upheld strict criminal provisions under the Pre-Conception and Pre-Natal Diagnostic
Techniques Act, 1994, observing that relaxing record-keeping requirements would defeat the
objective of the law. It thus drew a link between the object of a law and the need for criminalisation,
recognising its role in furthering the law’s purpose. Similarly, in upholding the offence of contempt of
court, the Court held that its object of maintaining public confidence in the justice system justified
criminalisation.
13
Conversely, provisions criminalising begging (Harsh Mander v. Union of India
14
), homosexuality
(Navtej Johar v. Union of India
15
), attempt to commit suicide (P. Rathinam v. Union of India
16
),
and adultery (Joseph Shine v. Union of India
17
) have been struck down, affirming the principle
that criminalisation is unwarranted where it infringes personal autonomy, discriminates, or lacks a
compelling State interest.
General principles for criminalisation
Based on this analysis a set of underlying principles and guidelines that guide the rational and
legitimate use of criminal law have been identified. The framework provided is designed to limit
the use of criminal law and ensure it remains a tool of last resort. It sets out general principles for
criminalisation and specific considerations for drafting criminal provisions, guiding their principled,
proportionate, and consistent application. This framework also serves as a basis for identifying
provisions that can be decriminalised or where punishments can be rationalised.
Principle 1: Criminalisation must protect a fundamental societal value.
Criminal law should apply only to acts that threaten core societal values essential for governance,
public safety, and stability, such as law and order, national security, life, liberty, property and social
harmony.
Guidelines
a. The link between the act and the value it seeks to protect must be direct and concrete, not
abstract or speculative.
12 (2019) 6 SCC 283.
13 In Re: Arundhati Roy, (2002) 3 SCC 343.
14 (2018) SCC OnLine Del 10427.
15 (2018) 1 SCC 791.
16 (1994) 3 SCC 394.
17 (2019) 3 SCC 39. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 17
b. If an act requires regulation but does not threaten these core values, civil or administrative
penalties should be preferred.
c. The law must clearly identify the specific societal value it aims to protect and prove that the
act poses a direct and substantial threat to that value.
d. Examples from the provisions under the Income-tax Act, 2025
Failing to get inventory valued by a cost
accountant and furnish the report.
This act does not pose a threat to any core societal value.
There is no direct or substantial link between the failure
and any significant harm that warrants criminalisation.
Wilfully attempting to evade payment of any
tax, penalty, or interest.

Deliberate and fraudulent attempts to evade payment
of tax pose a direct and concrete threat to economic
security. The link between the act and the harm is clear
and direct, justifying criminalisation.
Principle 2: Criminalisation must address a clear, direct, and substantial harm.
The law should only punish conduct that causes real, measurable harm to any of the values, not mere
inconvenience, offence, or moral disapproval.
Guidelines
a. Harm must be specific, identifiable, and demonstrable, not hypothetical or indirect.
b. The link between the act and the harm must be immediate and clear, establishing concrete,
substantial harm.
c. Examples from the provisions under the Income-tax Act, 2025
Failing to provide reasonable and technical
assistance for inspection of electronic records
The link between this unintentional failure and any real or
substantial harm is remote and indirect. In the absence of
clear, concrete, and demonstrable harm, criminalisation is
not justified.
Fraudulently transferring any property with
intent to defeat the execution of a certificate.

The harm caused by transferring a property with intent
to defeat recovery is specific, direct, and substantial. It
poses a risk of substantial revenue loss. Criminalisation
is justified given the fraudulent intent and significant risk
involved.
Principle 3: Criminalisation must be the only efficient and effective solution.
Criminal law should only be used when no other mechanism - civil, regulatory, or administrative, can
achieve the same goal as efficiently and effectively. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 18
Guidelines
a. Criminal punishment should serve one or more legitimate purposes, which include:
i. Deterrence – Only if the law ensures swift, certain, and stringent punishment.
ii. Incapacitation – Preventing individuals from causing further harm.
iii. Restitution – Addressing harm to victims.
b. Criminal law should not be used when alternative procedures are simpler, more effective,
fiscally responsible, and within the capacity of the system to manage.
c. Examples from the provisions under the Income-tax Act, 2025
Wilfully failing to furnish the return of total
income in due time as required by notice
given by the Assessing Officer.
Non‑production of documents or information is a
regulatory compliance issue best addressed through civil
sanctions.
Knowingly making a false statement in any
verification, resulting in tax evasion of Rs. 25
lakh or more.

Knowingly and fraudulently making a false statement
with the intent to deceive and evade tax requires
an element of deterrence to ensure honesty in tax
proceedings.
Principle 4: Criminalisation and imposition of criminal punishment must be a proportionate
response to harm.
The severity of punishment should align with the seriousness of the crime—neither excessive nor
unnecessary.
Guidelines
a. Criminal punishments should be used only when truly necessary and not as a default response.
b. If harm can be adequately addressed through fines, rehabilitation, or other non-criminal
measures, those should be preferred.
c. Punishments should reflect the level of culpability, distinguishing between intentional,
reckless, and accidental acts.
d. Examples from the provisions under the Income-tax Act, 2025
Failing to produce accounts and documents
as per notice served.
Criminalisation of minor procedural or regulatory lapse
such as failure to produce documents do not necessitate
a criminal response, and can be corrected through civil
processes.
Wilfully making a false entry or statement in
any books of account, with intent to enable
any other person to evade tax.

Wilful acts of falsifying records with the intent to help
them evade tax undermines tax compliance. Since the act
is intentional, it necessitates a criminal punishment. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 19
General considerations for drafting criminal provisions
a. Avoid duplication and ensure consistency: If an offence is already covered under general
criminal law, reference should be made to those provisions rather than creating new crimes.
This helps avoid contradictions and ensures harmonisation of punishments.
b. Conduct pre-legislative impact assessments:
i. Fiscal impact: Assess the financial burden of new criminal provisions on police, courts,
prisons, and overall state resources.
ii. Justice system capacity and effectiveness: Evaluate the impact on the capacity and
effectiveness of courts, correctional facilities, legal aid services, and the overall criminal
justice system.
c. Human rights and social impact: Ensure alignment with constitutional rights, avoid
criminalising protected activities (e.g., speech, privacy, association), assess whether the law
disproportionately affects marginalised communities, and ensure criminal law is not used to
enforce moral beliefs unless justified by clear public harm.
d. Ensure clear and precise drafting: Criminal provisions must avoid omnibus sections and
ambiguity i.e., offences should be explicitly defined. Further, punishments should clearly
differentiate between varying levels of severity of the offences.
e. Adopt alternative forms of punishments: Prioritise restorative justice mechanisms such as
community service, monetary penalties, and diversion programs for minor offences over
short-term imprisonment, especially for first-time offenders.
f. Mandate periodic review of criminal laws: Regular review of laws should be conducted to
identify and decriminalise redundant offences. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 20
Principles for criminalisation
Principles
Proportionate
response

Effective &
Efficient
solution

Clear,
identifiable, and
substantial
harm
Protection of
values

Criminalisation
must protect a
specific value that
is vital for the
existence of the
society and its
political
establishment.

Criminalisation
must be justified by
a clear, direct, and
reasonable
apprehension of
harm.

Criminalisation
must be employed
when it is the sole
means to achieve
the legitimate
purpose of the law.

Criminalisation
must be a
proportionate
response to the
harm.

Assessments
Fiscal Impact
Consistency
Test

Assess if alternative
measures might be
more cost effective,
before considering
criminalisation.


Ensure consistency
in criminalisation
and prescription of
punishment.



Justice System
Impact

Evaluate impact on the
capacity of police, courts,
prisons, legal aid, and
overall criminal justice
system.

Rights & Social
Impact

Assess if the law
disproportionately affects
marginalised communities,
or infringes constitutional
rights.
Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 21
4. Reviewing the Criminal Provisions of the Income-tax Act, 2025
The Income-tax Act, 2025 presents a timely opportunity to re-evaluate the role of criminal law in tax
enforcement, particularly in light of its broader reform objective to create a simpler, more accessible,
and trust-based tax regime.
This chapter offers an analysis of the criminal provisions under the Act. It classifies the provisions
into broad categories and applies a principle-based framework for criminal law-making. The aim is
to identify instances of excessive criminalisation and prescription of disproportionate punishments,
and also to suggest pathways for decriminalisation and rationalisation of punishments.
Applying the framework for criminalisation
To apply the framework effectively, it is necessary to identify the fundamental societal values that
the Act seeks to protect. It is apparent that one of the primary objectives of income-tax law is to
further economic security and fiscal integrity of the country. When an individual or entity seeks
to evade payment of tax, it may in some cases threaten or harm the fiscal integrity and economic
security of the country. However, the degree and nature of harm may vary, and not all such instances
may justify criminal sanction.
The other value sought to be protected is the due process of law. Certain actions or omissions,
such as withholding information, falsifying records, or failing to respond to statutory notices, can
undermine enforcement by misdirecting investigations, prolonging proceedings, and diverting limited
administrative resources. While some of these actions may have a direct and substantial impact on
the due process of law, others may not produce such clear or immediate harm and therefore require
closer scrutiny to determine whether criminalisation is justified.
Values sought to be advanced by income-tax law
Economic security & fiscal integrity of the countryDue process of law
Gradation of intent
The framework for criminalisation in the Act ascribes different degrees of intent to the acts and
omissions it criminalises. These are: wilfully, knowingly, and fraudulently.
1. Wilfully means doing anything deliberately and intentionally, not necessarily implying
malicious intent.
18
Even though wilfulness denotes a level of awareness, it does not
automatically imply a desire to deceive to cause harm.
2. Knowingly means doing anything with the knowledge of a particular fact or consequence.
The focus is on the state of mind indicating the conscious awareness of a fact
19
, rather than
the intentionality as implied by wilfully.
3. Fraudulently means doing anything with the intention to defraud
20
, i.e., it necessarily involves
an element of deceit.
18 M/S Chordia Automobile v. S. Moosa, 2000 (3) SCC 282.
19 A.S. Krishnan v. State of Kerala, (2004) 11 SCC 576.
20 Section 2(9), Bharatiya Nyaya Sanhita, 2023. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 22
Criminalising differing actions and omissions by assigning varying degrees of intent is important in
ensuring a proportionate response. Yet, the punishments assigned to offences in the Act, it is noted
do not strictly reflect such proportionality.
Furthermore, as the Act presumes the culpable mental state, such intent will be automatically
assumed. This presumption defeats the gradation of intent such as ‘wilfully,’ ‘fraudulently,’ or
‘knowingly’ into a single, assumed culpability, undermining the principle of proportionality.
Category-wise classification
Based on the nature of the conduct criminalised and its impact on the identified fundamental values,
all the 13 criminal provisions in the Act can be broadly classified into the following categories. The
corresponding civil penalties for these offences, wherever prescribed, have also been identified. A
detailed comparison of criminal punishments vis-a-vis civil penalties can be found in Annexure
III.
Category Relevant provisions - Criminal sanctionsCivil penalties
Obstruction of Tax
Enforcement
Section 473 – Contravention of order made
under section 247
No corresponding civil penalty section
Section 474 – Failure to comply with Section
247(1)(ii)
No corresponding civil penalty section
Section 475 – Removal, concealment, transfer
or delivery of property to prevent tax recovery
No corresponding civil penalty section
Section 480 – Wilful failure to furnish return of
income in search/requisition cases
No corresponding civil penalty section
Section 481 – Wilful failure to produce
accounts and documents
Section 465 - Penalty for failure to answer
questions, sign statements, furnish
information, returns or statements, allow
inspections, etc.
Attempting Tax
Evasion
Section 478 – Wilful attempt to evade tax, etc.
Section 439 - Penalty for underreporting and
misreporting of income.
Section 444 - Penalty for false entry, etc., in
books of account
Section 479 – Wilful failure to furnish returns
of income
Section 465 - Penalty for failure to answer
questions, sign statements, furnish
information, returns or statements, allow
inspections, etc.
Section 482 – False statement in verification,
etc.
No corresponding civil penalty section
Section 483 – Falsification of books of account
or document, etc.
Section 444 - Penalty for false entry, etc., in
books of account
Section 484 – Abetment of false return, etc.
Section 444 - Penalty for false entry, etc., in
books of account Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 23
Failing to Pay Tax
Section 476 – Failure to pay tax to credit of
Central Government under Chapter XIX-B
Section 448 - Penalty for failure to deduct tax
at source
Section 477 – Failure to pay tax collected at
source
No corresponding civil penalty section
Unauthorised Acts
by Public Servants
Section 494 – Disclosure of particulars by
public servants
No corresponding civil penalty section
While some of these offences do directly affect the key sovereign functions of tax collection,
investigation, and enforcement, it is crucial now to assess whether all categorised offences in the
Act comply with the principles and guidelines for criminal law making.
A. Obstruction of tax enforcement
The effectiveness of the tax administration depends on timely access to information, cooperation
from assessees and proper enforcement of measures such as search, seizure, survey action, summons
for information or ensuring personal presence, prohibitory orders etc. The criminalisation of actions
and omissions that may impede these processes, however, need scrutiny, particularly when the non-
compliance is procedural, does not involve any intent to defraud or does not cause any direct or
material harm.
1. Removing, parting with, or dealing with valuable articles, documents, or information
systems under deemed seizure without permission of the authorised officer (Section 473).
The power of ordering deemed seizure is a practical tool used by tax officers when physical confiscation
is difficult due to the property’s volume, weight, dangerous nature, or other physical characteristics
21
.
It functions as an administrative directive that effectively freezes the asset, preventing its use or
movement. The officers may also issue orders to prohibit removal, dealing, or parting with, any books
of account, documents, computer systems, assets, bank locker, bank accounts, without permission.
22

The scope of such an order may also require the owner or person in possession of such items to take
such steps as may be necessary to ensure compliance with the order.
23
While ensuring compliance with official orders is important to maintain integrity of the legal process,
a violation of a deemed seizure order is fundamentally a failure to adhere to a restriction on property
use. Criminalising such violations may be justified when there is clear intent to move seized goods
or documents to defraud the government, tamper with evidence or evade tax. However, since the
provision does not require proof of malicious intent, it risks criminalising mere procedural violations
that may arise from misunderstanding, operational necessity, or oversight, rather than deliberate
acts of fraud and tax evasion. These violations may often cause no real harm, and the impact may
only be procedural.
Presently, Section 473 criminalises contravention of any order made under Section 247(4), which
may end up including both minor procedural improprieties and more serious actions. Effectively, the
section not only criminalises fraudulent removal, dealing, or parting with property in order to defeat
the purpose of the order, but also extends to bonafide failures to take required steps to ensure
compliance with the order.
21 Section 247(4)(a)(i), Income-tax Act, 2025.
22 Section 247(4)(b)(i), Income-tax Act, 2025
23 ibid Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 24
The offence carries a punishment of rigorous imprisonment for up to 2 years and fine. This
punishment seems disproportionate if applied to minor, non-malicious, or technical violations (e.g.
shifting the object within the premises without any intention to defeat the object of the order). In
such cases, using alternative measures such civil penalties or attachment procedures would offer a
more proportionate and effective means of ensuring compliance.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No XNo XNo X
2. Failing to provide reasonable technical and other assistance, including the access code,
for inspection of books of account or other documents, which have been maintained in
the form of electronic record on any computer system (Section 474).
Section 247(1)(ii) of the Act empowers an authorised officer to require any person found in possession
of electronic records, including books of account or documents or other information maintained
in digital form, to provide reasonable technical and other assistance for inspection. This authority
extends beyond merely accessing devices or local files; officers may now compel disclosure of access
credentials, decrypt protected data, and directly inspect or seize digital information. These powers
are significant and expand search operations into the digital realm, allowing physical search powers
to now operate in ‘virtual digital spaces.’
Virtual digital space
Definition of ‘virtual digital space’ under Income-tax Act, 2025:
Section 261(j): “virtual digital space” means an environment, area or realm, that is constructed
and experienced through computer technology and not the physical, tangible world which
encompasses any digital realm that allows users to interact, communicate and perform activities
using computer systems, computer networks, computer resources, communication devices,
cyberspace, internet, worldwide web and emerging technologies, using data and information
in the electronic form for creation or storage or exchange and includes–– (i) email servers; (ii)
social media account; (iii) online investment account, trading account, banking account, etc.;
(iv) any website used for storing details of ownership of any asset; (v) remote server or cloud
servers; (vi) digital application platforms; and (vii) any other space of similar nature.
Through Section 247(1)(ii) and the newly inserted definition of virtual digital space, the Act
enables tax officers to access not only institutional, investment, or financial data but also personal
digital spaces including private emails, instant messages, social media accounts, and cloud-
based storage. The combination of these provisions results in compelled digital transparency,
where even encrypted or cloud-based personal content may be subject to inspection.
Section 474, criminalises the failure to provide any such assistance as required by the authorised
officer, including withholding of passwords or encryption keys. In effect, it turns any form of Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 25
non-cooperation, even inability to provide assistance, into an offence punishable with rigorous
imprisonment of up to 2 years and fine.
Impact on Fundamental Rights
While the objective of this provision is to ensure cooperation in digital investigations, it raises significant
concerns around privacy and protection against self-incrimination. Compelling individuals to reveal
access credentials to their devices or data could amount to testimonial compulsion, potentially
violating the right against self-incrimination guaranteed under Article 20(3) of the Constitution of
India. In the case of CBI v. Mahesh Kumar,
24
the court, while rejecting CBI’s application for seeking
passwords and user ID of the computer system of the accused, observed that recalling and disclosing
such information involves mental effort and qualifies as a testimonial act. Such compulsion, without
consent, would also contravene Section 161(2) of the Code of Criminal Procedure, 1973 [now section
Section 180(2), Bharatiya Nagarik Suraksha Sanhita, 2023].
Furthermore, electronic devices often contain a vast amount of personal and sensitive information
that extends far beyond financial records. Compelling access without robust safeguards could lead
to indiscriminate access to private data, in violation of an individual’s reasonable expectation of
privacy.
25
The failure to provide assistance is, at best, a procedural non-compliance. It does not cause any harm
to protected values or a direct obstruction to tax enforcement. Criminalising such non-cooperation,
especially, when it could result in violations of constitutional rights, is excessive and disproportionate. 
Globally, countries like Australia
26
and the United Kingdom
27
have enacted laws which require
mandatory key disclosure, and criminalise the failure to provide access to personal data. However,
enforcement of these laws are mostly confined to matters affecting national security and investigation
of serious criminal cases such as terrorism and organised crime, and not routine tax enforcement.
The failure to provide technical assistance carries a punishment of rigorous imprisonment up to 2
years and fine. As a procedural offence, this punishment appears disproportionate when compared
to a similar offence under the Bharatiya Nyaya Sanhita (BNS), 2023, i.e., failure to assist a public
servant, which is punishable with up to 6 months’ simple imprisonment or a fine of Rs. 5,000, or both.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No XNo XNo X
24 2022 SCC OnLine Dis Crt (Del) 48
25 Foundation for Media Professionals v. Union of India, Writ Petition (Criminal) No. 395 of 2022- The Supreme Court, while acknowledging
these concerns, directed the Union government to form guidelines for the seizure of digital devices by investigative agencies.
26 Section 3LA, The Cybercrime Act, 2001
27 Section 53, The Regulation of Investigatory Powers Act, 2000 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 26
3. Fraudulently removing, concealing, or transferring property to avoid execution of a
certificate (Section 475).
The act of fraudulently removing, concealing, or transferring property to avoid execution of a
certificate is criminalised to safeguard the lawful recovery of dues owed to the State and to deter
wilful tax evasion through fraudulent transfers of assets. Similar provisions exist under Section 243
of the BNS and Section 53 of the Transfer of Property Act, 1882. These provisions reflect a consistent
legal principle i.e., once a liability has accrued, any deliberate effort to frustrate its enforcement
through fraudulent means should attract civil or criminal liability.
Given that one of the core objectives of the Act is to ensure effective tax recovery, fraudulent transfer
of assets directly impedes that. Additionally, since the offence as defined under the Act requires
fraudulent intent, it excludes legitimate transactions that are not motivated by deceit.
However, while the nature of the offence warrants criminalisation, there is merit in rationalising the
punishment. For this offence, the Act prescribes rigorous imprisonment of up to 2 years and fine.
In contrast, for the same offence BNS provides for imprisonment of either description up to 3 years
or a fine up to Rs. 5,000, granting the court discretion to determine both the form and extent of
punishment. Mandatory prescription of imprisonment, that too rigorous in form, unduly restricts
judicial discretion and may result in disproportionate outcomes, especially in cases where mitigating
circumstances exist. Aligning the punishment with the BNS would promote consistency and allow
courts to tailor sentencing based on the facts of each case.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
Yes Yes No X
4. Wilfully failing to furnish returns in response to a notice (Section 480), or wilfully failing
to produce documents (Section 481).
Section 294(1)(a) empowers the Assessing Officer to issue a notice requiring any person to furnish
a return, including details of undisclosed income, for the purpose of assessment. Section 480
criminalises failure to file such returns within the stipulated time, prescribing rigorous imprisonment
of up to 3 years, with a mandatory minimum sentence of 3 months, along with a fine. Similarly,
Section 268(1) allows the Assessing Officer to serve notice requiring a person to file returns not
submitted on time, to produce accounts or documents, or to furnish information in writing. Section
481 criminalises wilful failure to comply with such a notice, prescribing rigorous imprisonment of up
to 1 year and a fine.
While these provisions aim to ensure compliance during inquiry or search proceedings, resorting to
criminalisation in such cases is excessive and disproportionate. By criminalising ‘wilful’ rather than
‘fraudulent’ conduct, they set a low threshold for criminal liability, capturing actions that may not
involve any element of malice, dishonesty, or harm. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 27
The Supreme Court in M/S Chordia Automobile v. S. Moosa
28
, clarified that wilfulness denotes
intentional action or a conscious disregard of duty, but does not necessarily imply malice.
29
Therefore,
in cases where the act is wilful but not malicious or fraudulent, failures can merely delay assessment
and may not necessarily lead to any revenue loss.
Considering punishment, the failure to furnish returns of income in search cases (Section 480) is
punishable with rigorous imprisonment for up to 3 years, with a mandatory minimum imprisonment
of 3 months, and fine. A similar offence in the Bharatiya Nyaya Sanhita, 2023, i.e., omission to produce
a document or electronic record to a public servant is punishable with simple imprisonment up to 1
month or fine up to Rs. 5,000 or both. In case it is to be produced in Court, then the punishment is
simple imprisonment up to 6 months or fine up to Rs. 10,000 or both. In comparison, the prescription
of rigorous imprisonment and a mandatory minimum jail term under the Act seems excessively
harsh.
Similarly, the wilful failure to produce accounts and documents in response to a notice (Section 481)
is punishable with rigorous imprisonment for up to 1 year and fine. The offence is one of contempt of
due process, but rigorous imprisonment of 1 year appears disproportionate. A similar offence in the
BNS is punishable with a lesser jail term and/or a monetary fine.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No XNo XNo X
5. Wilfully failing to get accounts audited or inventory valued as directed by the Assessing
Officer (Section 481).
Section 268(5) empowers the Assessing Officer to direct any person to get their accounts audited
by an accountant, have their inventory valued by a cost accountant, and submit the respective
reports. Section 481 criminalises wilful failure to comply with such directions, prescribing rigorous
imprisonment of up to 1 year and fine.
Similar to the provision above, the objective of this section is to ensure cooperation with the
Assessing Officer to facilitate proper assessment of accounts and returns. However, criminalising
non-compliance with such directions is a disproportionate response, particularly in cases where
there is no fraudulent intent. These directions are procedural tools meant to aid assessment, and
while compliance is important, failing to comply without any intent to deceive or suppress material
facts does not warrant the use of criminal law.
The prescription of mandatory rigorous imprisonment up to 1 year with fine is excessive and harsh
for what is a procedural violation. The violation is one of contempt of due process, and a similar
offence in the BNS is punishable with a lesser jail term of 6 months and/or a monetary fine.
28 2000 (3) SCC 282.
29 Harrington v. U.S., C.A.R.I., 504 F.2d 1306, 1315- Act is ‘willful’ within meaning of section of Internal Revenue Code imposing penalty for
willful failure to pay federal income and social security taxes withheld from employees if it is voluntary, conscious and intentional; no bad
motive or intent to defraud the United States need be shown; According to California Penal Code , willful when applied to the intent with
which an act is done or omitted, implies simply a purpose or willingness to commit the act, or make the omission referred to. It does not
require any intent to violate law, or to injure another, or to acquire any advantage. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 28
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No XNo XNo X
B. Attempting to evade tax
This category deals with conduct that may result in tax evasion, such as underreporting of income
or falsification of accounts. Such actions can directly lead to loss of revenue. However, just like for
the acts that obstruct enforcement, it is important to distinguish between fraudulent attempts to
evade tax and instances of non-compliance that occur inadvertently or even wilfully but without an
intent to deceive.
The fundamental reliance of India’s income tax system on taxpayer self-assessment necessitates
full and honest disclosure. However, with the government’s enhanced ability in the digital age to
cross-verify data and gather information from multiple agencies, its dependency on the taxpayer’s
disclosure is diminished. Consequently, criminal sanctions should be used judiciously, targeting
deliberate tax evasion rather than encompassing every technical reporting failure.
Wilfully attempting to evade tax (Section 478).
Section 478(1) lays down the various types of conduct that constitute an attempt to evade tax that
is chargeable or imposable. These include:
a. Underreporting of income;
b. Possessing or controlling books of account or documents containing false entries or
statements;
c. Making or causing to be made any false entry or statement in such documents;
d. Wilfully omitting or causing the omission of any relevant entry or statement;
e. Creating or causing any other circumstance to exist that may facilitate the evasion of tax,
penalty, or interest.
The punishment varies depending on the amount of tax sought to be evaded. If the tax sought to be
evaded exceeds Rs. 25 lakh, the offence is punishable with rigorous imprisonment for a term not less
than 6 months but may extend up to 7 years, along with a fine. Where the amount does not exceed
Rs. 25 lakh, the offence is punishable with rigorous imprisonment for a term not less than 3 months
but may extend up to 2 years, with or without a fine at the discretion of the court.
Section 478(1) serves a legitimate purpose by seeking to punish tax evasion. However, the provision
is drafted broadly, covering a wide range of actions, some of which may stem from genuine error or
oversight rather than fraudulent intent.
For instance, underreporting of income could arise from calculation mistakes, or misinterpretation
of the law. In such cases, where there is no intent to deceive, the act of underreporting does not
directly lead to any loss of revenue and can often be rectified once detected and communicated to the
assessee. Similarly, merely possessing or controlling books or documents containing false entries does
not imply that the person made those entries or that they were not the result of an honest mistake. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 29
Furthermore, Section 478 criminalises ‘creating or causing any other circumstance to exist that may
facilitate the evasion of tax, penalty, or interest’. Such a framing is vague and overbroad, lacking the
specificity that any criminal provision needs. In the absence of clear definitions and thresholds, these
catch-all formulations risk arbitrary interpretation and enforcement.
A blanket criminal response to all such actions is, therefore, disproportionate. There is a clear
need to rationalise the scope of criminalisation by distinguishing between fraudulent conduct
and procedural or unintentional lapses. While criminal prosecution may be appropriate in cases
involving large sums and intent to defraud, not all cases of non-compliance should be criminalised.
Most of these offences can be more appropriately dealt with through administrative or civil penalties
such as those provided under Sections 439 and 444 of the Act.
This also aligns with the current enforcement practice of CBDT. The guidelines issued by CBDT
state that criminal prosecution under Section 276C(1) of the Act (Wilful attempt to evade tax, etc.)
would be launched only after confirmation of the penalty order by the Income Tax Appellate Tribunal
(ITAT)
30
. Hence, in cases involving minor amounts or bonafide mistakes, criminal processes may be
avoided, since the recovery of tax will make good the loss and save resources.
Wilful attempt to evade payment of tax
Section 478(2) separately criminalises wilful attempts to evade the payment of any tax, penalty or
interest, once the liability has already been determined.
31
While this section also sets a relatively low
threshold for intent, the conduct that it targets i.e., deliberate non-payment of arrears, causes direct
and measurable harm to state revenue and may thus justify criminalisation.
Unlike Section 478(1), which criminalises preparatory or facilitative acts that may or may not lead to
loss of revenue and are rectifiable, Section 478(2) targets situations where the assessee intentionally
evades payment.
SectionHarm to Protected Value Requirement of Intent
Proportionality of
Punishment
478(1)
Yes
(When committed with
fraudulent intent)
No XNo X
478(2)
Yes
(Even when committed
without fraudulent intent)
No XNo X
1. Wilfully failing to furnish return of income in due time (Section 479).
Section 479 criminalises the wilful failure to furnish a return of income. Timely filing of tax returns
is central to the government’s ability to collect revenue. Tax filings provide authorities with the
necessary information on income, expenses, and other financial details to assess and collect taxes
fairly. Moreover, a predictable and consistent schedule for return filing enhances administrative
efficiency for both taxpayers and the tax department.
30 Central Board of Direct Taxes, 2019, ‘Procedure for identification and processing of cases for prosecution under Direct Tax Laws’, Circular
No. 24/2019 Issued Vide F.No. 285/08/2014-IT (Inv.V)/349 Dated 09.09.2019, <https://incometaxindia.gov.in/communications/circular/
circular-24-2019-11-09-2019.pdf> accessed on 9 April 2025.
31 Vinodchandra v. State of Gujarat, 253 ITR 289, Vinaychandra v. State of Gujarat 213 ITR 307 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 30
However, failing to file a return on time is, at its core, a procedural lapse. It does not, by itself,
indicate an intention to evade tax, nor does it necessarily result in revenue loss to the government.
Individuals may fail to file on time for a variety of reasons, ranging from personal hardship and lack
of awareness to technical glitches or misinterpretation of filing requirements. While such failures may
technically qualify as wilful acts, to equate such lapses with criminal behaviour and subjecting them
to prosecution can be disproportionate and counterproductive.
If the objective of the law is to ensure timely compliance and prevent revenue loss, there are already
sufficient civil and administrative measures in place, such as penal interest for delayed filing and
monetary penalties. These mechanisms are effective and proportionate for addressing procedural
defaults.
In a recent judgment, the Karnataka High Court held that even after the assessee filed the return
upon receiving a notice and paid the penalty imposed, they could still be prosecuted for delayed
filing. The court held that compliance after the fact does not preclude criminal prosecution.
32
This
shows that prosecution in such cases does not serve the goal of ensuring compliance, because
compliance was already achieved, so prosecution becomes a purely punitive measure.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No X
Yes
(But not fraudulent intent, only wilful
conduct needs to be established)
No X
2. Knowingly making a false statement or delivering a false account in a verification (Section
482).
The act of knowingly making a false statement or delivering a false account in a verification
is criminalised to ensure accuracy in information submitted to tax authorities. False statements,
particularly when made with the intent to deceive, can undermine tax enforcement and lead to
revenue loss. Therefore, there is a legitimate state interest in deterring deliberate falsification of facts
or accounts through criminal sanctions.
However, false statements made deliberately, with intent to mislead, must be distinguished from
inadvertent errors. Taxation law is extremely complex, and taxpayers often rely on interpretations
of legal provisions, professional advice, or their own understanding when making disclosures. What
may appear to be a false statement may, in practice, stem from ambiguity or oversight rather than
an intent to mislead. In such cases, civil penalties and corrective measures such as revised returns,
rectification, and assessment proceedings are better suited tools than criminal prosecution. The
threshold of ‘knowingly’ making a false statement limits the scope of prosecution to some extent
but it can be difficult to disprove that there was no knowledge and risks being applied too broadly.
Additionally, while the nature of the offence warrants criminalisation, there is merit in rationalising the
punishment. Rigorous imprisonment for up to 7 years with a mandatory minimum for making a false
statement or delivering a false account in any verification seems disproportionate. In comparison,
giving a false statement on oath or affirmation is punishable with imprisonment up to 3 years and
fine under the BNS
33
.
32 Raj Kumar Agarwal v. Income Tax Department (CRL.P.NO.201214/2023).
33 Section 216, Bharatiya Nyaya Sanhita, 2023 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 31
Harm to Protected ValueRequirement of IntentProportionality of Punishment
Yes
Yes
(But not fraudulent intent, only
knowledge needs to be established)
No X
3. Falsification of books of accounts or documents to enable tax evasion (Section 483), and
abetting such conduct or evasion of tax (Section 484)
Section 483 criminalises wilfully making a false entry or statement in any books of account or
document to enable another person to evade tax. It is punishable with rigorous imprisonment of
up to 2 years but not less than 3 months, and fine. Similarly, Section 484 criminalises abetment of
falsification or tax evasion making it punishable with imprisonment up to 7 years but not less than 6
months and fine, if the tax that would have been evaded exceeds Rs. 25 lakhs. In all other cases, with
imprisonment up to 2 years but not less than 3 months and fine.
These sections extend the scope of criminal liability to include not just the primary offenders but
also those who facilitate or abet evasion. It recognises collusion, whether through false accounting
or advisory misconduct in tax fraud.
Both these sections have a mens rea requirement. Section 483 uses the phrase ‘wilfully and with intent
to enable any other person to evade tax,’ indicating that both wilfulness and a specific intent to assist
in tax evasion must exist. This sets a higher threshold for criminal liability and clearly distinguishes
such conduct from technical non-compliance or bona fide errors.
Section 484, on the other hand, uses language similar to Section 482, criminalising those who
‘knowingly’ abet the making of false statements or the evasion of tax. It must be noted that the
concept of abetment, as defined under Section 45 of the BNS, inherently requires intention. It
involves instigating, engaging in conspiracy, or intentionally aiding an unlawful act. Therefore, mens
rea remains a core requirement even under Section 484.
The prescription of a mandatory minimum and rigorous imprisonment, however, appears
disproportionate and may need rationalisation, especially for cases involving minor amounts. Conduct
criminalised under Section 483 as well as Section 484 is covered under civil penalty Sections
34
which
allows for imposition of penalty of the aggregate amount of false entry or omission, on the person
who causes another person to make a false entry or omission, for evading tax liability.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
Yes Yes No X
C. Failing to pay tax
This category includes offences where a taxpayer or intermediary, entrusted with deducting
or collecting tax on behalf of the government, fails to deposit the tax within the stipulated
time frame. The deductor acts as a fiduciary, not a taxpayer, and is responsible for ensuring
that government dues are timely remitted.
34 Section 444, Income-tax Act, 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 32
4. Failure to pay tax to credit of the Central Government (Section 476) and Failure to pay tax
collected at source (Section 477).
Sections 476 and 477 criminalise the failure to deposit tax deducted (‘TDS’) or collected at source
(‘TCS’), such as from salaries, rent, transfer of immovable property or sale of specified goods. Since
the deductor/collector acts in a fiduciary capacity
35
, the non-remittance of tax already deducted from
other’s income may amount to a breach of trust and directly harm public revenue. It is, therefore,
valid for the law to punish the misuse of public money held in trust.
However, the offence, as currently framed, does not require fraudulent or wilful intent to be proved. Any
delay or failure, even if unintentional or procedural, can lead to criminal prosecution. This criminalises
even unintentional lapses such as defaults arising due to cash flow constraints, accounting errors, or
administrative oversights, rather than deliberate misconduct.
The CBDT guidelines
36
acknowledge this distinction, stating that prosecution for failure to pay TDS
or TCS should generally not be pursued for cases where the amount involved is below Rs. 25 lakhs
and the delay is less than 60 days. Prosecution should be reserved for exceptional cases, such as
against habitual defaulters or where the default is clearly intentional and repeated. The guidelines
aim to ensure that criminal proceedings are not initiated for minor or inadvertent lapses and are
instead focused on cases where there is clear evidence of deliberate non-compliance.
Moreover, where there is no fraudulent intent, civil remedies such as interest, penalties, and recovery
mechanisms are sufficient and more appropriate.
The punishment for failure to deposit tax deducted or collected at source - rigorous imprisonment
for a minimum of 3 months, extendable up to 7 years, is clearly disproportionate to the nature
of the offence. In fact, the same maximum punishment under the BNS is prescribed for offences
such as causing grievous hurt or kidnapping a child under 10 years of age, neither of which carry a
mandatory minimum sentence.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
Yes No XNo X
D. Unauthorised acts by public servants
This category includes only one offence i.e., a public servant furnishing any information or producing
any document, in contravention of a notification made by the Central Government prohibiting the
same (Section 494). It seeks to protect confidentiality, integrity of tax proceedings, and public trust.
However, the offence does not require proof of corruption, malicious intent or resultant harm which
creates the risk of penalising honest mistakes or administrative lapses. While such disclosures may
undermine privacy or the fairness of proceedings, they typically do not result in direct financial
loss or significantly obstruct tax assessments. In such cases, civil or administrative measures such
as disciplinary action would be more appropriate and effective. The provision acknowledges the
35 The Income Tax Officer v. M/s. Suryodaya Infrastructure Pvt., Ltd, CC.No.345-14 , 2017.
36 Central Board of Direct Taxes, 2019, ‘Procedure for identification and processing of cases for prosecution under Direct Tax Laws’, Circular
No. 24/2019 Issued Vide F.No. 285/08/2014-IT (Inv.V)/349 Dated 09.09.2019,
<https://incometaxindia.gov.in/communications/circular/circular-24-2019-11-09-2019.pdf> accessed on 9 April 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 33
potential for non-malicious lapses, as prosecution can only be initiated with prior sanction from the
government. This offers some safeguard against automatic penalisation for honest errors.
The prescribed punishment, mandatory imprisonment up to 6 months and a fine seems to be
disproportionate to the nature of the offence, particularly when it may arise from inadvertent
errors rather than deliberate misconduct. A clearer legislative distinction between malicious and
non-malicious disclosures, accompanied by graded administrative responses for non-malicious
disclosures, would better serve the objective of deterrence.
Harm to Protected ValueRequirement of IntentProportionality of Punishment
No XNo XNo X
Conclusion
From the above analysis, it is clear that the Act employs criminal sanctions for a range of actions
and omissions, some of which are deliberate and fraudulent, while others are merely procedural and
regulatory lapses. Although many of these offences require proof of criminal, or fraudulent intent,
the Act instead presumes the existence of a culpable mental state (Section 490). This effectively
shifts the burden of proof to the accused, who must establish the absence of such intent.
37
Even as this presumption itself appears to be an excessively harsh measure, the manner in
which punishments are prescribed is even more severe. In fact, all offences under the Act attract
imprisonment, with harsh mandatory minimum terms prescribed for 25 offences, and all except one
carrying rigorous imprisonment. All of this, when civil and regulatory tools are already available,
prescribed, and even recommended over criminal prosecution for 18 of the 35 offences.
There is, therefore, a strong case for reform. While offences involving fraud, deliberate concealment,
or repeated defaults may continue to attract criminal sanctions, several minor infractions can be
decriminalised to rely instead on civil enforcement. Further, there is ample scope to rationalise the
punishment framework by removing excessive mandatory minimum sentences, prescribing simple
rather than rigorous imprisonment, and reducing overall terms of imprisonment.
In essence, a clearer distinction between serious tax fraud or evasion and non-criminal failures or
defaults would improve enforcement outcomes for the department, reduce the burden on courts,
and make tax administration more predictable and less coercive.
37 Section 490, Income-tax Act, 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 34
5. International Best Practices: Reserving Criminal Sanctions for
Serious Violations
As a primary source of government revenue, direct tax regimes require robust systems of collection
and enforcement. Even as the objective of ensuring compliance is universal, the extent to which
criminal law is used for this purpose varies significantly across countries.
Offences related to income tax administration across the globe generally involve four kinds of non-
compliances: non-payment of taxes owed i.e. tax evasion; failure to furnish documents or file returns
as required; furnishing false documents or returns and underreporting income. Most countries
criminalise these serious violations, particularly tax evasion, reflecting a broad consensus on their
gravity.
However, there is a growing trend to reserve criminal sanctions for most egregious and culpable
violations. Minor infractions, such as delays in filing, minor underreporting, or furnishing incorrect
documents without fraudulent intent are typically managed through administrative procedures.
These procedures usually involve monetary penalties and interest, focusing on correction, revenue
recovery, and deterring future non-compliance, without invoking the criminal justice system.
Limiting criminal prosecution in tax compliance and enforcement
Countries limit the use of criminal prosecution through a range of mechanisms. For instance, the
United States of America (U.S.A) has set high thresholds for initiating prosecution, requiring proof of
fraudulent intent, wilfulness, or significant financial harm. Other countries such as Germany establish
clear legal distinctions between criminal intent and lesser culpability like recklessness in its fiscal
code. In countries like the United Kingdom (U.K.), tax authorities have adopted policies prioritising
civil investigation routes first, reserving criminal referral for the most egregious cases. Japan follows
a similar approach, imposing a high administrative penalty for fraud termed the ‘Heavy Penalty Tax’
before escalating to criminal prosecution, if necessary.
The following table provides a comparative overview of how some countries balance the use of
criminal law and administrative measures in their tax enforcement frameworks.
Country Threshold for Criminal Prosecution and Administrative Action
Germany a. The German Fiscal Code distinguishes between tax evasion and reckless tax evasion. Section 370
defines tax evasion as a crime and includes actions such as submitting incorrect particulars or failing
to furnish relevant particulars leading to the understatement of taxes or unlawful tax benefits for
oneself or others.
38
b. Section 378, on the other hand, addresses reckless commission of the same acts, treating them
as administrative offences.
39
No fine is imposed if the person voluntarily corrects or discloses the
missing or incorrect information before being notified of legal proceedings.
40
Even if tax has already
been understated or tax advantages have already been derived, a penalty is avoided if the person
pays the due amount within a reasonable time.
38 Section 370, The Fiscal Code of Germany <https://www.gesetze-im-internet.de/englisch_ao/englisch_ao.html#p2615> accessed on 9 April
2025.
39 Section 378, The Fiscal Code of Germany <https://www.gesetze-im-internet.de/englisch_ao/englisch_ao.html#p2684> accessed on 9
April 2025.
40 Section 371,The Fiscal Code of Germany <https://www.gesetze-im-internet.de/englisch_ao/englisch_ao.html#p2634> accessed on 9 April
2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 35
United
Kingdom
(U.K.)
a. The Tax Management Act, 1970 criminalises the fraudulent evasion of tax. By explicitly requiring
proof of knowledge and fraudulent intent, the provision ensures that only deliberate acts aimed
at deceiving the government fall within its scope. Other non-compliances such as failing to give
notice of being chargeable to tax, failing to deliver return or making an inaccurate return are also
punishable with imprisonment and fines.
b. In practice, however, His Majesty’s Revenue & Customs (HMRC) limits the scope of criminal
prosecution. Its policy generally favours civil investigation mechanisms (such as Code of Practice 9)
to recover tax and impose penalties, even in cases involving fraud.
41
Criminal prosecution is reserved
for select serious cases based on criteria like deliberate concealment, position of trust, or organised
crime. These are only pursued when HMRC needs to send a strong deterrent message or where the
conduct involved is such that only a criminal sanction is appropriate.
42

Austria Austria’s Fiscal Penal Code also differentiates between intentional tax evasion (section 33) and negligent
reduction of taxes (section 34)
.43
Negligent reduction of taxes is punishable only with a fine up to the
applicable amount of reduced taxes.
Jersey a. Income Tax (Jersey) Law’s tax framework under the Income Tax Law, 1961 and the Revenue
Administration Law, 2019 clearly differentiates between criminal conduct and civil non-compliance.
Only a limited set of actions are criminalised such as fraudulently providing a return that is incorrect
in a material particular
44
, obstructing a public officer
45
, knowingly altering, concealing, destroying
or otherwise disposing of the information requested by the Comptroller
46
, or making wrongful
disclosures
47
.
b. All other forms of non-compliances such as failure to deliver return on time, refusing to allow a
deduction of tax or furnishing inaccurate returns are addressed through civil penalties
c. The Revenue Jersey Code of Practice on Compliance Activities reinforces this, stating that
administrative penalties are the standard response for errors, carelessness, or deliberate non-
compliance that do not meet the threshold for serious cases.
48
Penalty amounts are linked to the
level of culpability i.e., a careless act attracts a penalty between 10% and 30% of the tax difference,
while deliberate non-compliance attracts a higher penalty ranging from 50% to 100%.
The United
States of
America
a. The Internal Revenue Code prescribes a range of tax-related offences, including attempts to evade
or defeat tax, willful failure to collect or pay over tax, failure to file returns or pay taxes, and the
intentional submission of false statements.
49
These offences are punishable with imprisonment
and/or fines. However, criminal liability generally requires proof of ‘willfulness’ that is, an intentional
violation, beyond a reasonable doubt. In many cases, corresponding civil penalties are also prescribed
for the same acts.
b. The authority to initiate criminal prosecution, however, rests with the Internal Revenue Service
(IRS), which exercises this discretion selectively. Prosecution is authorised only where there is clear
evidence of fraud, and decisions are based on factors (called ‘badges of fraud’) such as the strength
of evidence, the gravity of the offence (including its scale, frequency, or deliberate nature), and the
necessity of deterrence.
41 Government of United Kingdom, HM Revenue and Customs, Code of Practice 9 (June 2023) <https://assets.publishing.service.gov.uk/
media/64a821251121040013ee64ed/COP9_06_23.pdf > accessed on 9 April 2025.
42 Government of United Kingdom, HM Revenue and Customs, Criminal Investigation Policy <https://www.gov.uk/government/publications/
criminal-investigation/hmrc-criminal-investigation-policy> accessed on 9 April 2025.
43 Fiscal Penal Act, 1958, Austria <https://extranet.who.int/fctcapps/sites/default/files/2024-04/2_legal%20bases_AT.pdf> accessed on 9
April 2025.
44 Section 137, Income Tax Law, 1961 <https://www.jerseylaw.je/laws/current/l_29_1961>accessed on 9 April 2025.
45 Section 141C, Income Tax Law, 1961 <https://www.jerseylaw.je/laws/current/l_29_1961> accessed on 9 April 2025.
46 Section 27H, Revenue Administration Law, 2019 <https://www.jerseylaw.je/laws/current/l_13_2019> accessed on 9 April 2025.
47 Section 9, Revenue Administration Law, 2019 <https://www.jerseylaw.je/laws/current/l_13_2019> accessed on 9 April 2025.
48 Government of Jersey, Treasury and Exchequer, Code of Practice on Revenue Jersey Compliance Activities (January 2024) <https://www.
gov.je/SiteCollectionDocuments/Tax%20and%20your%20money/ID%20RJ%20Code%20of%20Practice%20on%20Compliance%20Activi-
ties.pdf> accessed on 9 April 2025.
49 Title 26, Internal Revenue Code, Subtitle F, Procedure and Administration <https://uscode.house.gov/view.xhtml?path=/prelim@title26/
subtitleF/chapter75/subchapterA&edition=prelim> accessed on 9 April 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 36
Japan a. Japan adopts a similar approach to that of the U.S.A, maintaining both criminal offences and civil
penalties within its tax enforcement framework. However, criminal prosecution is pursued only in
a limited number of cases, typically where there is clear and demonstrable evidence of malicious
intent or fraud.
b. The penalty structure includes sanctions for underreporting, non-filing, and withholding tax
payments. In instances of fraud, a distinct and more severe penalty referred to as the heavy penalty
tax is imposed in place of the standard penalties. The amount of penalty is 35% of the additional tax
for underreporting, 40% of the tax determined for non-filing, and 35% of the tax due for failure to
fulfill withholding obligations.
50
50 Grand Thornton, Japan Tax Bulletin (May 2017) <https://www.grantthornton.jp/globalassets/1.-member-firms/japan-2/pdfs/newsletter/
bulletin/archive/bulletin_201705.pdf> accessed on 9 April 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 37
6. Recommendations For a Trust Based Framework
For the Act to truly facilitate trust-based governance it must move away from its overreliance
on criminalisation for ensuring compliance. This requires decriminalising minor non-compliances,
rationalising punishments to fit the offence, and prioritising alternative forms of sanctions.
Based on an analysis of all the criminal provisions in the Act, this report makes the following broad
recommendations. The table below offers a snapshot of the nature and scope of these proposed
recommendations, serving as a ready reference for the detailed recommendations that follow.
S. NO.CategoryRecommendations
1.
Decriminalisation of specified acts
of omission or commission
Reclassify acts or omissions so they are no longer criminal offences
and carry no criminal liability.
2.
Partial Decriminalisation/ Selective
Criminalisation of specified acts of
omission or commission
Retain criminal sanctions for fraudulent or malicious conduct, while
decriminalising non-malicious failures like procedural or technical
non-compliance. This ensures proportionate treatment based on
intent and severity.
3.
Retain Criminalisation of specified
acts of omission or commission
Maintain criminal provisions where necessary to respond to serious
misconduct.
4. Rationalisation of Punishments
Remove mandatory minimum sentences to allow proportionality in
punishment. Permit judicial discretion to choose between fines and
imprisonment, and replace rigorous imprisonment with simple or
flexible alternatives.
5. Simplification of Language
Redraft provisions using plain, accessible language. This ensures
clarity in compliance requirements and enforcement.
6.
Presumption of Culpable Mental
State
Omit the presumption to align with general principles of criminal
law. Restore the burden of proof on the prosecution, as is standard
practice.
Recommendations
Based on the above analysis of all the criminal provisions in the Act, this report makes the following
broad recommendations to Decriminalise, partially de-criminalise and retain criminal provisions for
specified acts of omissions and commissions enumerated in the following provisions of the Income-
tax Act, 2025. The corresponding provisions of the earlier Income Tax Act, 1961 have also been stated.
Decriminalise
Partially decriminalise
Retain criminalisation
Retaining criminalisation for fraudulent
and malafide conduct
12 offences17 offences6 offences Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 38
Provisions for Decriminalisation
S. No.
Provisions in the 2025 Act
& 1961 ActOffence Rationale & Recommendation
1.
Income-tax Act, 2025
Section 476. Failure
to pay tax to credit of
Central Government
under Chapter XIX-B
Income-tax Act, 1961
Section 276B. Failure
to pay tax to the credit
of Central Government
under Chapter XII-D or
XVII-B.
Failing to pay tax
deducted at source as
required by or under
provisions relating to
collection, recovery of tax,
deduction and collection
at source, to the credit of
the Central Government.
[Section 476(1)(a)]
Failing to pay tax deducted at source is a procedural
default which may sometimes arise from unintentional
or non-malafide lapses. While there is a reasonable
connection with harm to public revenue and fiscal
integrity, the harm is measurable and reparable. Such
defaults do not threaten core societal values such as
public safety, law and order, or national security.

Further, civil remedies such as interest and penalties
are proportionate and effective, offering greater
swiftness and certainty in ensuring compliance without
resorting to criminal prosecution.
Recommendations:
Omit Section 476.
Amend Section 448 to penalise failure to pay tax
deducted at source with civil penalty.
2. Income-tax Act, 2025
Section 476. Failure
to pay tax to credit of
Central Government
under Chapter XIX-B
Income-tax Act, 1961
Section 276B. Failure
to pay tax to the credit
of Central Government
under Chapter XII-D or
XVII-B.
Person responsible for
releasing the winnings
for any lottery, crossword
puzzle, card game,
gambling, betting or any
other online game, failing
to pay or ensure payment
of tax that is deducted on
such winnings, where it is
wholly in kind, or is partly
in kind and partly in cash
but where the part in cash
is not sufficient to meet the
liability of deduction of tax,
to the credit of the Central
Government, before
releasing the winnings.
[Section 476(1)(b) r/w Note
6 to Section 393(1) (Table
Sl. No. 8)]
A person responsible for releasing winnings failing
to pay tax due on any income on lottery, etc. before
releasing the winnings is a procedural default which may
sometimes arise from non-malafide or unintentional
lapses. While there is a reasonable connection to
harm to public revenue and fiscal integrity, the harm is
measurable and reparable. Such defaults do not threaten
core societal values like public safety, law and order, or
national security. Civil remedies are more proportionate
and effective, offering greater swiftness and certainty
in ensuring compliance without resorting to criminal
prosecution.
Recommendation: Omit Section 476.
3. Income-tax Act, 2025
Section 476. Failure
to pay tax to credit of
Central Government
under Chapter XIX-B
Income-tax Act, 1961
Section 276B. Failure
to pay tax to the credit
of Central Government
under Chapter XII-D or
XVII-B.
Person providing any
benefit, perquisite or
consideration failing to
pay or ensure payment of
tax that is deducted on
such benefit, perquisite or
consideration, where there
is no part in cash (in respect
of virtual digital assets), or
is wholly in kind, or is partly
in kind and partly in cash
but where the part in cash
is no sufficient to meet the
liability of deduction of tax,
to the credit of the Central
Government.
[Section 476(1)(b) r/w Note
6 to Section 393(1) (Table
Sl. No. 8)]
Failing to pay tax deducted on a benefit, perquisite
or consideration is a procedural default which may
sometimes arise from an unintentional or non-malafide
lapse without any fraudulent intent. While there is a
reasonable connection with harm to public revenue and
fiscal integrity, the harm is measurable, and reparable.
Such defaults do not threaten public safety, national
security, or law and order.
Further, civil remedies are more proportionate and
effective, offering greater swiftness and certainty in
ensuring compliance without resorting to criminal
prosecution.
Recommendation: Omit Section 476 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 39
4. Income-tax Act, 2025
Section 477. Failure
to pay tax collected at
source.
Income-tax Act, 1961
Section 276BB. Failure to
pay the tax collected at
source.
Failing to pay to the
credit of the Central
Government, the tax which
one is required to collect
at source.
[Section 477(1) r/w Section
397(3)(a),
Section 392(2)(a)]
Failure to pay to the credit of the government tax collected
at source may be due to procedural and unintentional
lapses with no malafide intent. Even as there is a direct
connection with harm to public revenue, the harm is
measurable, and reparable through recovery. This failure
does not threaten public safety, national security, or law
and order. Criminalisation is disproportionate and would
not be as effective in repairing the harm. Enforcement
should focus on civil or administrative measures which
offer greater swiftness and certainty in enforcement.
Recommendations:
Add a section in Chapter XXI (Penalties) which penalises
failure to pay tax collected at source.
Omit Section 477.
5. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting
to evade the payment
of any tax, penalty, or
interest chargeable or
imposable, by causing
any circumstance to exist
which may have the effect
of enabling one to evade
any tax, penalty, or interest
chargeable or imposable,
or the payment of such
tax, penalty, interest, where
the amount sought to be
evaded exceeds twenty-
five lakh rupees.
[Section 478(1)(a) r/w
Section 478(4)(d)]
Tax evasion directly impacts public revenue. However,
the framing of the offence lacks precision and specificity.
Such vague and broad sections risk blurring lines
between minor infractions and fraudulent conduct,
and lead to criminalisation of minor or technical non-
compliances. Actions and omissions that may lead to tax
evasion should be explicitly listed, defined and assigned
proportionate criminal punishments, as is done for other
offences.
6. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting
to evade the payment
of any tax, penalty, or
interest chargeable or
imposable, by causing
any circumstance to exist
which may have the effect
of enabling one to evade
any tax, penalty, or interest
chargeable or imposable,
or the payment of such
tax, penalty, interest, where
the amount sought to be
evaded does not exceed
twenty-five lakh rupees.
[Section 478(1)(b) r/w
Section 478(4)(d)]
Recommendation: Omit Section 478(4)(d). Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 40
7. Income-tax Act, 2025
Section 479. Failure to
furnish returns of income.
Income-tax Act, 1961
Section 276CC. Failure to
furnish returns of income.
Wilfully failing to furnish
the return of income in
due time as required,
where the amount of tax
which would have been
evaded if the failure had not
been discovered exceeds
twenty-five lakh rupees.
[Section 479(1)(a) r/w
Section 263(1), Section
268(1) and Section 280]
Failing to file returns within the time specified does
not, in itself, establish a direct and substantial harm to
public revenue and fiscal integrity of the country. It is
fundamentally a procedural lapse that can be remedied.
The section risks criminalising delays or minor procedural
lapses. It also imposes harsh and disproportionate
punishments where civil penalties, under Section 465,
may offer greater swiftness and certainty in enforcement,
and are more effective and appropriate in securing
revenue.
8. Income-tax Act, 2025
Section 479. Failure to
furnish returns of income.
Income-tax Act, 1961
Section 276CC. Failure to
furnish returns of income.
Wilfully failing to furnish
the return of income in
due time as required,
where the amount of tax
which would have been
evaded if the failure had
not been discovered does
not exceed twenty-five
lakh rupees.
[Section 479(1)(a) r/w
Section 263(1), Section
268(1) and Section 280]
Recommendation: Omit Section 479.
9. Income-tax Act, 2025
Section 480. Failure to
furnish return of income
in search cases.
Income-tax Act, 1961
Section 276CCC. Failure
to furnish return of
income in search cases.
Wilfully failing to furnish
the return of total income
in due time as required
by notice given by the
Assessing Officer in the
case where any search has
been initiated or requisition
is made.
[Section 480 r/w Section
294(1)(a)]
Failing to furnish return in response to a notice requiring
furnishing of returns does not, in itself, establish a
direct and substantial harm to public revenue and fiscal
integrity of the country. It is fundamentally a procedural
lapse that can be remedied. Presently the provision
imposes harsh and disproportionate punishments where
civil penalties, under Section 465, may offer greater
swiftness and certainty in enforcement, and are more
effective and appropriate in securing revenue.
Where wilful non-compliance is part of a broader act of
evasion or falsification, it can be addressed under other
substantive offences.
Recommendation: Omit Section 480.
10. Income-tax Act, 2025
Section 481. Failure to
produce accounts and
documents.
Income-tax Act, 1961
Section 276D. Failure to
produce accounts and
documents.
Wilfully failing to
produce, or to cause to
be produced the accounts
and documents referred to
in a notice served by the
Assessing Officer.
[Section 481 r/w Section
268(1)]
Failing to comply with any orders to produce documents
does not, in itself, establish a direct and substantial harm
to public revenue and fiscal integrity of the country. It
risks criminalising minor procedural or regulatory lapses
that can be remedied. Presently, the provision imposes
harsh and disproportionate punishments where civil
penalties, under Section 465, may offer greater swiftness
and certainty in enforcement, and are more effective
and appropriate in securing revenue.
Where wilful non-compliance is part of a broader act of
evasion or falsification, it can be addressed under other
substantive offences.
Recommendation: Omit Section 481. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 41
11. Income-tax Act, 2025
Section 481. Failure to
produce accounts and
documents.
Income-tax Act, 1961
Section 276D. Failure to
produce accounts and
documents.
Wilfully failing to comply
with a direction issued by
the Assessing Officer, to
get the accounts audited
by an accountant and
furnish the report.
[Section 481 r/w Section
268(5)(i)]
Failure to comply with a requirement of getting accounts
audited does not directly impact public revenue and fiscal
integrity of the country. The audit supports the integrity
of tax assessment, but non-compliance, especially due
to oversight or delay, does not justify criminal sanction.
Civil penalties, under Section 465, may offer greater
swiftness and certainty in enforcement, and are more
effective and appropriate in securing revenue.
Where wilful non-compliance is part of a broader act of
evasion or falsification, it can be addressed under other
substantive offences.
Recommendation: Omit Section 481.
12. Income-tax Act, 2025
Section 481. Failure to
produce accounts and
documents.
Income-tax Act, 1961
Section 276D. Failure to
produce accounts and
documents.
Wilfully failing to comply
with a direction issued by
the Assessing Officer, to
get the inventory valued
by a cost accountant and
furnish the report.
[Section 481 r/w Section
268(5)(ii)]
Failure to comply with a direction to get inventory valued
may be a serious regulatory infraction, but it does not
significantly and directly impact public revenue and
fiscal integrity of the country. The valuation supports
the integrity of tax assessment, but non-compliance,
especially due to oversight or delay, does not justify
criminal sanction. Civil penalties under Section 465,
and adverse inference provisions under assessment law
provide sufficient corrective tools.
Recommendation: Omit Section 481. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 42
Provisions for Partial Decriminalisation
S. No.Provisions in the 2025
Act & 1961 Act
Offence Rationale & Recommendation
1. Income-tax Act, 2025
Section 473.
Contravention of order
made under section 247.
Income-tax Act, 1961
Section 275A.
Contravention of order
made under sub-section
(3) of section 132.
Contravening an order of
deemed seizure of any
valuable article or thing if it
is not possible or practicable
to take physical possession
or removal to a safe place of
such article or thing, due to
its volume, weight, or other
physical characteristics or it
being of a dangerous nature,
by removing or parting or
otherwise dealing with such
article or thing, without
permission of the authorised
officer.
[Section 473 r/w Section
247(4)(a)(i)]
Contravening an order of deemed seizure with
a malafide intent, including with an intent to
tamper with evidence, may be detrimental
to tax enforcement. In these cases criminal
sanctions may be necessary.
However, the current provision does not clearly
differentiate between intentional actions
and unintentional or procedural lapses. Non-
malafide actions that technically contravene
deemed seizure orders may be decriminalised.
In such cases, civil or administrative penalties
may be more effective and efficient, offering
greater swiftness and certainty in enforcement.
Recommendation: Amend Section 473
to clearly criminalise only intentional or
fraudulent contravention of order of deemed
seizure.
2. Income-tax Act, 2025
Section 473.
Contravention of order
made under section 247.
Income-tax Act, 1961
Section 275A.
Contravention of order
made under sub-section
(3) of section 132.
Contravening an order
prohibiting removal, parting
or dealing of any books
of account, documents,
computer systems, asset, bank
locker, bank account, if it was
not practicable to seize the
same, without permission of
the authorised officer.
[Section 473 r/w Section
247(4)(b)(i)]
Contravening an order prohibiting removal,
parting with, or dealing in any books of account,
documents, computer systems, or other assets
without permission of the authorised officer
may, when done with malafide intent, obstruct
investigations and undermine tax enforcement.
However, the current provision does not clearly
distinguish between intentional wrongdoing
and unintentional or procedural lapses. Non-
malafide actions that technically contravene
such orders may be decriminalised. In such
cases, civil or administrative penalties may be
more effective and efficient, offering greater
swiftness and certainty in enforcement.
Recommendation: Amend Section 473
to clearly criminalise only intentional or
fraudulent contravention of prohibitory order.
3. Income-tax Act, 2025
Section 474. Section 474.
Failure to comply with
section 247(1)(ii).
Income-tax Act, 1961
Section 275B. Failure
to comply with the
provisions of section
(iib) of sub-section (1) of
section 132.
Failing to provide reasonable
technical and other
assistance, including the
access code, for inspection
of books of account or other
documents, which have been
maintained in the form of
electronic record on any
computer system.
[Section 474 r/w Section 247(1)
(ii)]
Failing to provide assistance may impede
investigation and result in obstruction. However,
since the authorities are empowered under the
law to take coercive measures such as breaking
open and accessing physical and digital spaces
for evidence, criminalising genuine inability to
facilitate or mere non-compliance is excessive.
Further, compelling individuals to reveal access
credentials may be violative of constitutional
protections against self-incrimination and
failure to provide such access should not be
criminalised. The scope of access often extends
beyond traditional books of accounts to include
emails, investment data, or social media, also
raising serious constitutional concerns about
investigative overreach and privacy.

Hence, the scope of Section 474 may be
limited to serious physical interference or
the use of force or violence against a public
servant.
Recommendations: Amend Section 474 to only
criminalise intentional physical interference
or use of force against any authorised person
discharging official duties. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 43
4. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Under-reporting one’s income,
where the tax on under-
reported income exceeds
twenty-five lakh rupees.
[Section 478(1) r/w Section
478(1)(a)]
Evading tax liability by under-reporting poses
a direct threat to the fiscal integrity of the
country and warrants criminal prosecution.
However, to ensure proportionality and
targeted enforcement, criminal liability should
be limited to fraudulent conduct, irrespective
of the monetary threshold. Underreporting
arising from bonafide error, technical oversight
etc. without any fraudulent intent, should be
decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Further, the monetary threshold of Rs. 25 lakh
should be revised to Rs. 1 crore, to bring it in
line with contemporary fiscal standards. This
threshold was last revised in 2012.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
under-reports his income’.
The monetary threshold of Rs. 25 lakh should
be revised to Rs. 1 crore, to bring it in line with
contemporary fiscal standards.
5. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax,
penalty, or interest chargeable
or imposable, by possessing
or controlling any books of
account or other documents
containing a false entry or
statement, where the amount
sought to be evaded exceeds
twenty-five lakh rupees.
[Section 478(1)(a) r/w Section
478(4)(a)]
Tax evasion poses a direct threat to the
fiscal integrity of the country and warrants
criminal prosecution. However, criminalising
mere possession of books of account which
contains a false entry or statement may be
disproportionate.
To ensure proportionality and targeted
enforcement, criminal liability should be
confined to clearly intentional misconduct,
specifically instances where a person knowingly
possesses books of account containing false
entries or statements. This narrower scope
ensures that only deliberate and conscious
violations attract prosecution.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempts in any manner to evade’.
Amend Section 478(4)(a) to read as
‘knowingly has in his possession or control any
books’. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 44
6. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax,
penalty, or interest chargeable
or imposable, by making or
causing any false entry or
statement to be made in
books of account or other
documents, where the amount
sought to be evaded exceeds
twenty-five lakh rupees.
[Section 478(1)(a) r/w Section
478(4)(b)]
Evading tax liability by making false entries
poses a direct threat to the fiscal integrity of
the country and warrants criminal prosecution.
However, to ensure proportionality and targeted
enforcement, criminal liability should be limited
to fraudulent conduct, irrespective of the
monetary threshold. Bonafide errors, technical
misreporting etc. without any fraudulent intent,
should be decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempts in any manner to evade’.
Amend Section 478(4)(b) to read as ‘wilfully
makes or causes to be made any false entry’.
7. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to
evade the payment of any
tax, penalty, or interest
chargeable or imposable, by
wilfully omitting or causing any
relevant entry or statement to
be omitted in books of account
or other documents, where the
amount sought to be evaded
exceeds twenty-five lakh
rupees.
[Section 478(1)(a) r/w Section
478(4)(c)]
Evading tax liability by wilfully omitting
relevant entries poses a direct threat to the
fiscal integrity of the country and warrants
criminal prosecution. However, to ensure
proportionality and targeted enforcement,
criminal liability should be limited to fraudulent
conduct, irrespective of the monetary threshold.
Bonafide errors, technical misreporting etc.
without any fraudulent intent, should be
decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempting in any manner to evade’. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 45
8. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Under-reporting one’s income,
where the tax on under-
reported income does not
exceed twenty-five lakh rupees.
[Section 478(1)(b) r/w Section
478(1)]
Evading tax liability by under-reporting poses
a direct threat to the fiscal integrity of the
country and warrants criminal prosecution.
However, to ensure proportionality and
targeted enforcement, criminal liability should
be limited to fraudulent conduct, irrespective
of the monetary threshold. Underreporting
arising from bonafide error, technical oversight
etc. without any fraudulent intent, should be
decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Further, for lower-value cases, with a revised
threshold of Rs. 1 Crore, a proviso may be
added requiring civil penalty award to have
been confirmed by the ITAT prior to launching
criminal prosecution.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
under-reports his income’.
For cases involving amounts less than Rs. 1
crore, add a proviso requiring civil penalty
award to have been confirmed by the ITAT prior
to launching criminal prosecution. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 46
9. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax,
penalty, or interest chargeable
or imposable, by possessing
or controlling any books of
account or other documents
containing a false entry or
statement, where the amount
sought to be evaded does not
exceed twenty-five lakh rupees.
[Section 478(1)(b) r/w Section
478(4)(a)]
Tax evasion poses a direct threat to the fiscal
integrity of the country and warrants criminal
prosecution.
However, criminalising mere possession of
books of account which contains a false entry
or statement may be disproportionate.
To ensure proportionality and targeted
enforcement, criminal liability should be
confined to clearly intentional misconduct,
specifically instances where a person knowingly
possesses books of account containing false
entries or statements. This narrower scope
ensures that only deliberate and conscious
violations attract prosecution.
All other cases should attract civil penalties
under Sections 439 and 444. This ensures that
criminal prosecution is reserved for serious
misconduct while avoiding penal consequences
for procedural or unintentional lapses.
Further, in line with CBDT’s guidelines, for
lower-value cases, with a revised threshold of
Rs. 1 Crore, a proviso may be added requiring
civil penalty award to have been confirmed by
the ITAT prior to launching criminal prosecution.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempts in any manner to evade’.
Amend Section 478(4)(a) to read as ‘knowingly
has in his possession or control any books’.
For cases involving amounts less than Rs. 1
crore, add a proviso requiring civil penalty
award to have been confirmed by the ITAT prior
to launching criminal prosecution. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 47
10. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax,
penalty, or interest chargeable
or imposable, by making or
causing any false entry or
statement to be made in
books of account or other
documents, where the amount
sought to be evaded does
not exceed twenty-five lakh
rupees.
[Section 478(1)(b) r/w Section
478(4)(b)]
Evading tax liability by making false entries
poses a direct threat to the fiscal integrity of
the country and warrants criminal prosecution.
However, to ensure proportionality and targeted
enforcement, criminal liability should be limited
to fraudulent conduct, irrespective of the
monetary threshold. Bonafide errors, technical
misreporting etc. without any fraudulent intent,
should be decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Further, in line with CBDT’s guidelines, for
lower-value cases, with a revised threshold of
Rs. 1 Crore, a proviso may be added requiring
civil penalty award to have been confirmed by
the ITAT prior to launching criminal prosecution.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempts in any manner to evade’
Amend Section 478(4)(b) to read as ‘wilfully
makes or causes to be made any false entry’
For cases involving amounts less than Rs. 1
crore, add a proviso requiring civil penalty
award to have been confirmed by the ITAT prior
to launching criminal prosecution. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 48
11. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax,
penalty, or interest chargeable
or imposable, by wilfully
omitting or causing any
relevant entry or statement
to be omitted in books of
account or other documents,
where the amount sought to
be evaded does not exceed
twenty-five lakh rupees.
[Section 478(1)(b) r/w Section
478(4)(c)]
Evading tax liability by wilfully omitting
relevant entries poses a direct threat to the
fiscal integrity of the country and warrants
criminal prosecution. However, to ensure
proportionality and targeted enforcement,
criminal liability should be limited to fraudulent
conduct, irrespective of the monetary threshold.
Bonafide errors, technical misreporting etc.
without any fraudulent intent, should be
decriminalised.
Such cases should instead attract civil penalties
under Sections 439 and 444, in line with
CBDT’s guidelines. This ensures that criminal
prosecution is reserved for serious misconduct
while avoiding penal consequences for
procedural or unintentional lapses.
Further, in line with CBDT’s guidelines, for
lower-value cases, with a revised threshold of
Rs. 1 Crore, a proviso may be added requiring
civil penalty award to have been confirmed by
the ITAT prior to launching criminal prosecution.
Recommendations:
Decriminalise the conduct that arises from
bonafide error, technical misreporting, or
interpretative dispute, without fraudulent intent.
Amend Section 478(1) to read as ‘fraudulently
attempts in any manner to evade’.
For cases involving amounts less than Rs. 1
crore, add a proviso requiring civil penalty
award to have been confirmed by the ITAT prior
to launching criminal prosecution.
12. Income-tax Act, 2025
Section 478. Wilful
attempt to evade tax, etc.
Income-tax Act, 1961
Section 276C. Wilful
attempt to evade tax, etc.
Wilfully attempting to evade
the payment of any tax, penalty
or interest under this Act, in
any manner.
[Section 478(2)]
Intentionally evading payment of tax due
directly impacts the fiscal security of the
country. Criminalisation deals with this direct
undermining of the tax system. However, to
ensure proportionality and avoid overreach,
prosecution should be limited to cases where
fraudulent intent is clearly demonstrated.
Bonafide errors or unintentional failures without
any fraudulent intent, should be decriminalised.
A distinction should also be made between low
and high-value cases. For lower-value cases,
under the threshold of Rs. 1 Crore, civil penalties
under Section 439 and 444 should suffice, in
line with CBDT prosecution guidelines.
Recommendations:
Amend Section 478(2) to read as ‘fraudulently
attempts in any manner to evade payment’
Add a proviso, requiring civil penalty award
to have been confirmed by the ITAT prior
to launching criminal prosecution for cases
involving amounts less than Rs. 1 crore. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 49
13. Income-tax Act, 2025
Section 482. False
statement in verification,
etc.
Income-tax Act, 1961
Section 277. False
statement in verification,
etc.
Knowingly making a false
statement in any verification
under the Act or under any
rules made thereunder, where
the amount of tax that would
have been evaded if the
statement had been accepted
as true exceeds twenty-five lakh
rupees.
[Section 482(a)]
Knowingly making a false statement in a
verification or delivering a false account
prevents accurate assessment of tax liability.
Criminalisation seeks to ensure integrity of tax
proceedings.
However, to ensure proportionality and avoid
overreach, prosecution should be limited
to cases where fraudulent intent is clearly
demonstrated.
Narrowing the scope will ensure that bonafide
conduct or errors are decriminalised.
Additionally, the monetary threshold of Rs. 25
lakh should be revised to Rs. 1 crore, to bring it
in line with contemporary fiscal standards. This
threshold was last revised in 2012.
14. Income-tax Act, 2025
Section 482. False
statement in verification,
etc.
Income-tax Act, 1961
Section 277. False
statement in verification,
etc.
Knowingly delivering a false
account, where the amount
of tax that would have been
evaded if the account had
been accepted as true exceeds
twenty-five lakh rupees.
[Section 482(a)]
15. Income-tax Act, 2025
Section 482. False
statement in verification,
etc.
Income-tax Act, 1961
Section 277. False
statement in verification,
etc.
Knowingly making a false
statement in any verification
under the Act or under any
rules made, where the amount
of tax that would have been
evaded if the statement had
been accepted as true, does not
exceed twenty-five lakh rupees.
[Section 482(b)]
16. Income-tax Act, 2025
Section 482. False
statement in verification,
etc.
Income-tax Act, 1961
Section 277. False
statement in verification,
etc.
Knowingly delivering a false
account, where the amount
of tax that would have been
evaded if the account had been
accepted as true does not
exceed twenty-five lakh rupees.
[Section 482(b)]
Recommendations:
Amend Section 482 to read as ‘If a person
fraudulently makes a statement in any
verification’
Amend Section 482 to increase monetary
threshold for differing punishments from Rs.
25 lakh to Rs. 1 crore. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 50
17. Income-tax Act, 2025
Section 494. Disclosure
of particulars by public
servants.
Income-tax Act, 1961
Section 280. Disclosure
of particulars by public
servants.
Furnishing any information or
producing any document as a
public servant, in contravention
of a notification made by the
Central Government prohibiting
the same.
[Section 494 r/w Section
258(3)]
Disclosures of information or documents in
violation of a prohibitory notification may
harm investigation. However, in most cases,
the harm is procedural, indirect, and does
not cause personal gain or financial loss.
Presently, the section criminalises unintentional
or bonafide mistakes, which is excessive and
disproportionate.
To ensure proportionality, criminalisation may
be retained only for deliberate disclosures that
pose a clear risk to sensitive investigations, and
unintentional errors should be decriminalised.
In other cases, internal disciplinary action
or administrative penalties would be more
effective.
Recommendation: Amend Section 494
to clearly criminalise only deliberate or
intentional breaches of confidentiality by
public servants. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 51
Retention of Criminalisation
S. No. Provisions in the 2025 Act & 1961 Act Offence Rationale & Recommendation
1
Income-tax Act, 2025
Section 475. Removal, concealment,
transfer or delivery of property to
prevent tax recovery.
Income-tax Act, 1961
Section 276. Removal, concealment,
transfer or delivery of property to thwart
tax recovery.
Fraudulently removing
any property or interest
to any person, with the
intent to prevent such
property or interest from
being taken in execution
of a certificate.
[Section 475]
Fraudulently removing any property
or interest with the intent to prevent
it from being taken in execution of a
certificate obstructs tax enforcement
and undermines the integrity of
lawful processes.
Such intentional and malafide actions
cause direct and substantial harm
and therefore warrant criminalisation.
2
Income-tax Act, 2025
Section 475. Removal, concealment,
transfer or delivery of property to
prevent tax recovery.
Income-tax Act, 1961
Section 276. Removal, concealment,
transfer or delivery of property to thwart
tax recovery.
Fraudulently concealing any
property or interest to any
person, with the intent to
prevent such property or
interest from being taken in
execution of a certificate.
[Section 475]
3
Income-tax Act, 2025
Section 475. Removal, concealment,
transfer or delivery of property to
prevent tax recovery.
Income-tax Act, 1961
Section 276. Removal, concealment,
transfer or delivery of property to thwart
tax recovery.
Fraudulently transferring or
delivering any property or
interest to any person, with
the intent to prevent such
property or interest from
being taken in execution of
a certificate.
[Section 475]
Recommendation: Retain the
provision. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 52
4
Income-tax Act, 2025
Section 483. Falsification of books of
account or document, etc.
Income-tax Act, 1961
Section 277A. Falsification of books of
account or document, etc.
Wilfully making any false
entry or statement in any
books of account or other
document relevant or useful
in any proceedings under
the Act, with the intent to
enable any other person to
evade any tax, interest or
penalty.
For the purposes of
establishing the charge
under this section, it shall
not be necessary to prove
that the second person
has actually evaded any
tax, penalty or interest
chargeable or imposable
under this Act.
[Section 483]
This offence deals with wilful
falsification of records with the
intent to help another person evade
tax, interest, or penalties, even if no
actual evasion takes place.
While criminalisation is justified
for deliberate misconduct that
undermines tax compliance, existing
civil penalties under Section 444
may be preferred particularly in
cases involving minor or first-time
contraventions.
Recommendation: Retain the
provision.
5
Income-tax Act, 2025
Section 484. Abetment of false return,
etc.
Income-tax Act, 1961
Section 278. Abetment of false return,
etc.
Knowingly inducing or
abetting any person to
make or deliver a false
account, statement or
declaration relating to any
income chargeable to tax,
where the amount of tax,
penalty or interest which
would have been evaded
if the account, statement
or declaration had been
accepted as true exceeds
twenty-five lakh rupees.
[Section 484(a) r/w Section
484(i)]
Abetting filing of false returns which
results in evasion of tax directly
affects the nation’s fiscal integrity.
Such wilful abetment or inducement
to submit false information for the
purpose of evading tax warrants
criminal liability. Criminalisation of
clear, deliberate misconduct deters
manipulation of financial records or
concealment of income.
6
Income-tax Act, 2025
Section 484. Abetment of false return,
etc.
Income-tax Act, 1961
Section 278. Abetment of false return,
etc.
Knowingly inducing or
abetting any person to
make or deliver a false
account, statement or
declaration relating to any
income chargeable to tax,
where the amount of tax,
penalty or interest which
would have been evaded
if the account, statement
or declaration had been
accepted as true does not
exceed twenty-five lakh
rupees.
[Section 484(a) r/w Section
484(ii)]
Recommendation: Retain the
provision. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 53
Rationalisation of punishments prescribed
Even as overreliance on criminal law to ensure tax compliance and enforcement is, in itself, not reflective
of a trust-based system, the form and terms of imprisonment prescribed exacerbate the problem.
Imprisonment, often meant for the most grave and serious offences, is used excessively in the Act, through
mandatory minimum sentences, rigorous imprisonment, and little room for judicial discretion. For most
offences, this is either unnecessary or grossly disproportionate.
The following are some key areas where punishments can be rationalised.
1. Remove mandatory minimum sentences and allow greater judicial discretion.
Of the 35 offences punishable under the Act, 25 carry mandatory minimum jail terms. Such a prescription
of punishment disallows courts from granting lesser sentences after considering the specific circumstances
of each case. It prevents judges from weighing aggravating and mitigating factors and from ensuring that
punishment remains proportionate to the degree of culpability involved.
Even as only around 13% of all crimes under union laws attract mandatory minimum punishments,
51

the Act imposes such terms on nearly 71% of crimes. This stark contrast further necessitates a critical
relook at whether punishments, typically reserved for grave offences, such as those illustrated below, are
appropriate or necessary to ensure compliance with taxation laws.
Mandatory minimum sentences for offences in the Act & BNS
Offence in the ActMandatory minimumOffence in BNS
Failing to pay tax deducted at source. (Section
476)
Ye s
Selling a child for prostitution.
(Section 98)
Wilfully underreporting income to evade tax.
(Section 478)
Ye sCausing grievous hurt. (Section 116)
Knowingly making a false statement in any
verification, where tax evaded is less than Rs. 25
lakh. (Section 483)
Ye sChild trafficking (Section 143)
2. Rationalise terms of imprisonment and allow judicial discretion between fine and imprisonment
for offences
The term of imprisonment is considered to be reflective of the gravity of the offence. Out of 35
offences in the Act, 13 offences (38%) are punishable with 7 years of imprisonment. In addition, many
minor infractions under the Act are punishable with lengthy durations of imprisonment, which prima
facie appear excessive and do not align with the principle of proportionality.
For punishment to be just, it must be proportionate to the harm caused and applied consistently
across similar offences. A comparative analysis with the BNS, the parent criminal statute, reveals
several instances where the same or similar offences attract different punishments under the Act and
the BNS, and conversely, where entirely different offences are prescribed the same punishment. This
inconsistency highlights a lack of alignment between the gravity of the offence and the punishment
imposed. The terms of imprisonment should therefore be rationalised in line with the BNS to
ensure that they are just, fair, and reasonable.
51 State of the System Report, Vidhi Centre for Legal Policy, April 2025, available at <https://crimeandpunishment.in/researches/the-state-
of-the-system> accessed on 3rd May 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 54
These discrepancies are illustrated in the tables below.
Differing offences: Similar punishments
Offence in the ActPunishmentPunishmentOffence in BNS
Wilfully failing to furnish
return of income in due
time as required, resulting in
tax evasion of Rs. 25 lakhs
or more. (Section 479)
Rigorous imprisonment up
to 7 years, but not less than
6 months, and fine.
Imprisonment of either
description up to 7 years
and fine.
Kidnapping a child under
the age of 10 years with
intent to steal from them.
(Section 97)
Person or employer
responsible for paying any
income, failing to pay the
tax deducted, collected or
determined to the credit of
the Central Government.
(Section 476)
Rigorous imprisonment up
to 7 years, but not less than
3 months, and fine.
Imprisonment of either
description up to 5 years, or
fine, or both.
Rioting with a deadly
weapon. (Section 191)
Similar offences: Differing punishments
Offence in the ActPunishmentPunishmentOffence in BNS
Failure to provide technical
assistance for accessing
electronic records. (Section
473)
Rigorous imprisonment up
to 2 years and fine.
Simple imprisonment up
to 1 month, or fine up to
₹5,000, or both.
Omitting to give information
to a public servant when
legally bound to do so.
(Section 211)
Failing to furnish returns
of income in search cases.
(Section 480)
Rigorous imprisonment up
to 3 years, but not less than
3 months, and fine.
Simple imprisonment up
to 1 month, or fine up to
₹5,000, or both.
Omitting to produce a
document or electronic
record to a public servant
when legally bound to do
so. (Section 210)
Knowingly making a false
statement or delivering a
false account, resulting in
tax evasion of Rs. 25 lakhs
or more, if accepted as true
(Section 482).
Rigorous imprisonment up
to 7 years, but not less than
6 months, and fine.
Imprisonment up to 3 years
and fine.
Giving a false statement on
oath or affirmation. (Section
216)
Discretion between fine and imprisonment: Comparison between the Act & BNS
Offence in the ActPunishmentPunishmentOffence in BNS
Fraudulently transferring
any property, with intent
to defeat execution of a
certificate. (Section 475)
Imprisonment and fine
Imprisonment, or fine, or
both
Cheating. (Section 318)
Wilfully failing to get
inventory valued upon
notice. (Section 481)
Imprisonment and fine
Imprisonment, or fine, or
both
Fraudulently removing or
concealing any property.
(Section 323)
Moreover, all these offences do not allow for judicial discretion between imposition of fine and
imprisonment or both. Enabling such judicial discretion allows courts to impose the necessary
punishment that would best fit the facts and circumstances of the case. The courts are also able to
take into account the willingness and ability of the accused to repair the harm caused, in these cases
a monetary loss to exchequer, and impose the appropriate fine. Since the recovery of lost revenue
will, in most cases, make good the loss, a mandatory prescription of imprisonment for 88% offences
under the Act may be a disproportionate response.
3. Amend rigorous form of imprisonment with either form of imprisonment
The Act prescribes rigorous imprisonment for nearly all offences (97%) that are punishable with
imprisonment. Such a mandatory prescription is typically reserved for grave and heinous crimes Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 55
or repeat offenders. In contrast, only 7% of all crimes under Union laws are punishable with
rigorous imprisonment. Under the BNS also, rigorous imprisonment is prescribed in only 11% of
all offences.
52

In fact, even for serious crimes such as throwing acid with intent to disfigure, attempt to murder, or
causing a miscarriage, judges retain the discretion to determine the appropriate form of imprisonment.
For the Act to mandate rigorous imprisonment for 97% of offences is clearly disproportionate. It is
therefore recommended that the language be amended to provide for ‘either form of imprisonment’,
allowing judicial discretion to ensure that the punishment is reasonable and proportionate to the
nature of the offence.
Form of imprisonment: Comparison between the Act & BNS
Offence in the ActForm of
imprisonment
Form of imprisonmentOffence in BNS
Contravening an order of
deemed seizure. (Section 473)
RigorousEitherAcid attack. (Section 124)
Wilfully failing to produce
accounts and documents as per
notice (Section 481)
RigorousEitherCausing a miscarriage. (Section 88)
Knowingly delivering a false
account, leading to tax evasion.
(Section 482)
RigorousEitherAttempt to murder. (Section 109)
Omit the presumption of culpable mental state
Determination of the culpable mental state of an accused is essential for adjudication and prescribing
the appropriate punishment. For instance, the distinction between murder and culpable homicide
not amounting to murder hinges on the intent and mental state of the accused.
Section 490 of the Act provides that, in the prosecution of any offence under the Act requiring a
culpable mental state, the court shall presume the existence of such mental state.
As a result, where an offence is worded as ‘wilfully attempting to evade tax’ or ‘fraudulently transfers
a property,’ the court will presume that the accused acted wilfully or fraudulently, unless proven
otherwise. While many offences under the Act explicitly require a culpable mental state, this
presumption shifts the burden of proof onto the accused. This inevitably leads to inadvertent or
unintentional errors being prosecuted as wilful or fraudulent acts.
Moreover, such presumptions are typically found in laws like the Protection of Children from
Sexual Offences Act, 2012 (POCSO), and the Narcotic Drugs and Psychotropic Substances
Act, 1985 (NDPS), which address serious crimes involving direct harm to individuals or society. In
stark contrast, the Act is fundamentally civil in nature, dealing with taxation matters that affect all
citizens seeking to meet their legal obligations. Its context is markedly different, rooted in enabling
compliance, not in punishing criminal conduct.
Applying this presumption in the context of tax law imposes a disproportionately punitive standard
on ordinary taxpayers and reflects a presumption of guilt rather than trust. It undermines the
citizen-centric nature of the law and runs counter to the broader vision of trust-based governance.
Accordingly, it is recommended that the provision on the presumption of culpable mental state be
omitted from the Act.
52 State of the System Report, Vidhi Centre for Legal Policy, April 2025, available at <https://crimeandpunishment.in/researches/the-state-
of-the-system> accessed on 3rd May 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 56
Simplification of language
Even as the Act takes much needed steps toward simplifying the text of the law, several criminal
provisions remain difficult to interpret due to complex cross-referencing and indirect phrasing. It
is often unclear what specific act or omission is being criminalised. To ensure that the average citizen
fully understands the letter and spirit of the law, the drafting should be simple, accessible, rational,
and actionable (SARAL).
53
Criminal provisions, in particular, must clearly and directly state the conduct being criminalised. Each
provision should avoid complex cross-references and be self-contained, specifying the prohibited
act in precise terms. This will make the law more concise, lucid, and easier to read and apply.
To guide further simplification, some provisions have been re-drafted in a simple and precise manner,
which can be found in Annexure IV. Below is one of the re-drafted provisions which clearly states
what action or omission is being criminalised.
Present provisionSimplified provision
Section 473. Contravention of order made under section
247. - Whoever contravenes any order referred to in
section 247(1)(viii) or (4) shall be punishable with rigorous
imprisonment which may extend to 2 years and shall also
be liable to fine.
Section 473. Contravention of order made under Section
247. - (1) Any person whom without the permission of the
authorised officer, does any of the following–
(a) Removes, parts, or otherwise deals with any valuable
article or thing that are subject to an order of deemed
seizure as issued under Section 247(4)(a)(i), or
(b) Removes, parts, or otherwise deals with any books of
account, other documents, computer systems, asset, bank
locker, bank account, that are subject to a prohibitory
order issued under Section 247(4)(b)(i),
shall be punishable with rigorous imprisonment of up to 2
years and shall also be liable to fine.
7. Conclusion
A detailed analysis of all crimes and punishments proposed under the Act has been presented.
Each criminal provision has been evaluated against a principled framework to assess the necessity,
proportionality, and effectiveness of criminalisation in meeting the Act’s objectives.
At the heart of this analysis is the need to reimagine compliance and enforcement frameworks under
the Act. It urges for a reconsideration of the continued reliance on criminal law, particularly for minor,
technical, or procedural non-compliances. Further, it underscores the importance of distinguishing
between fraud and ordinary lapses, and ensuring that punishments are aligned with the nature and
gravity of the harm caused.
The recommendations are anchored in the broader national commitment to improving Ease of Living
and Ease of Doing Business. They reflect a necessary shift away from fear-based enforcement and
towards trust-based governance, where the law enables compliance rather than assumes criminality.
This also includes rationalisation of punishments, the removal of reverse burdens of proof, greater
use of civil and administrative remedies where appropriate, and the simplification of legal provisions
to make them more accessible and citizen-friendly.
53 A. Nigam et al, ‘The SARAL Manual’, Vidhi Centre for Legal Policy, March 2023, available at <https://vidhilegalpolicy.in/research/
the-saral-manual/> accessed on 1st May 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance 57
Finally, consistent with current policy position, which favours proportionate and targeted enforcement,
the recommendations made in this report aim to assist in transforming the income-tax law into a
coherent, fair, and future-ready compliance framework without compromising its efficacy or the
department’s ability to safeguard revenue.
Towards a trust based compliance framework
The table below presents a snapshot of the proposed shift towards a trust based compliance
framework. It captures the “before” and “after” picture based on our recommendations.
CategoryBeforeAfter (Proposed Recommendations)
Scope of
Criminalisation
35 criminal offences
6 offences retained
12 offences completely decriminalised
17 offences partially decriminalised - criminal liability
retained only for fraudulent and malafide conduct.
Burden of Proof
Presumption of fraudulent, malicious,
or wilful intent; burden on taxpayer to
disprove
Prosecution must establish wilful or fraudulent intent
beyond reasonable doubt
Punishment
Framework
Mandatory imprisonment and fine in
nearly all offences, with no judicial
discretion to choose between the two
Judicial discretion introduced to allow courts to
impose imprisonment or fine, case-by-case
Mandatory minimum terms of
imprisonment for 25 offences
Mandatory minimum terms of imprisonment
removed, allowing for more proportionate
sentencing
Rigorous imprisonment prescribed for all
imprisonable offences
Judicial discretion introduced to decide between
granting imprisonment of either description - simple
or rigorous
Focus on
compliance rather
than punishment
Excessive, lengthy imprisonment for
unintentional or procedural defaults
Civil penalties prioritised where harm is repairable.
Criminal prosecution reserved for clearly fraudulent,
high-value cases
No mechanism to correct minor regulatory
errors
Allows correction of procedural defaults and minor
infractions without criminal liability
Drafting &
Accessibility
Complex cross-referencing and dense
phrasing
Compliance-friendly, simply drafted provisions Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance i
ANNEXURE Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance ii
Annexure I: Analysis of the Income-tax Act, 2025 - A Primer
Introduction
Tax administration is one of the most fundamental functions of the State. It not only enables generation
of resources for providing essential public services but also facilitates an equitable distribution of
wealth in the society. In India, the framework for direct taxation is established by the Income-tax
Act, 1961 (‘1961 Act’). The 1961 Act regulates the imposition, administration, collection and recovery
of income tax.
The Income-tax Act undergoes annual amendments through the Finance Acts to reflect changes
in the tax rates, incorporate measures introduced to promote investment, employment and socio-
economic welfare initiatives. These frequent amendments, however, have made the Act extremely
complex, raising the cost of compliance for taxpayers and hampering efficiency of direct-tax
administration. Both practitioners and taxpayers have highlighted challenges in understanding the
complicated provisions and structure of the 1961 Act.
54

The Law Commission, in its 12th report on the Income-tax Act, 1922 raised similar concerns, describing
income tax law as extremely complicated, illogically arranged, and in some respects, obscure, largely
due to the ‘precipitate and continuous tinkering with the Act’.
55
While the 1961 Act was intended to
simplify and streamline taxation, it has gradually become just as complex as its predecessor.
To address these concerns, the Ministry of Finance introduced the Income-tax Act, 2025 (‘Act’).
The Act seeks to replace the 1961 Act with a framework that is simpler, more concise, lucid and
easy to understand.
56
By enhancing accessibility and reducing ambiguity, the Act seeks to facilitate
compliances and create a more efficient taxation system. Some of the key changes proposed in the
Act are:
57
a. Elimination of redundant and repetitive provisions to make the law easier to comply with.
b. Reorganisation of provisions in a logical structure to increase coherence.
c. Use of simplified language for improved readability and clarity.
d. Consolidation of amendments to minimise fragmentation and ensure consistency.
54 Statement of Object and Reasons, Income-tax Act 2025.
55 Law Commission of India, ‘Income Tax Act 1922’,1958 (12) <https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/up-
loads/2022/08/2022080592.pdf> accessed 12th March 2025.
56 Statement of Object and Reasons, Income-tax Act 2025.
57 Press Release, ‘Income-tax Act, 2025, tabled in Parliament today towards achieving comprehensive simplification of the Income-tax Act,
1961’ <https://pib.gov.in/PressReleasePage.aspx?PRID=2102744> accessed 12th March 2025. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance iii
Using Criminal Law to Ensure Compliance
In addition to the complicated language and structure, the 1961 Act relies heavily on criminal law to
enforce compliances. It criminalises 54 actions and omissions through 15 provisions
58
, many of which
are minor regulatory infractions, such as:
a. Failing to give notice of appointment as a receiver or liquidator. [Section 276A(i) r/w Section
178(1)(a)]
b. Failing to provide reasonable assistance for inspection of books of account or other
documents, which have been maintained in the form of electronic record on any computer
system. [Section 275B r/w Section 132(1)(iib)]
c. Failing to get inventory valued by a cost accountant. [Section 276D r/w Section 142(2A)(ii)]
d. Failing to furnish the audit report as required by the Assessing Officer. [Section 276D r/w
Section 142(2A)(i)]
The criminalisation of such minor infractions is not only excessive and disproportionate, but also
creates a pervasive fear of arrest amongst citizens, directly impacting their ease of living. Moreover,
it necessitates the use of an elaborate administrative and criminal justice machinery to address
violations that could otherwise be resolved through substantially less coercive and more efficient
regulatory mechanisms.
The Income-tax Act, 2025 comes at a time when decriminalisation of minor regulatory non-
compliances and rationalisation of punishments is a key policy priority. Reforms such as the Jan
Vishwas Act, 2023, decriminalised 183 provisions across 42 laws to promote ease of living and ease of
doing business. Given this broader policy shift, it is essential to evaluate whether the Act aligns with
the shift towards decriminalisation and rationalisation of punishments or continues the overreliance
on criminal law as is the case with the 1961 Act.
This primer analyses the provisions of the Act, mapping the full scope and extent of criminalisation
and documenting all the provisions that have been decriminalised. There would be an application of
a principled based assessment framework to identify provisions that warrant decriminalisation and
the rationalisation of punishments.
Extent of Criminalisation in the Income-tax Act, 2025
The Income-tax Act, 2025, continues to rely on criminalisation as a tool to ensure compliances and
effective enforcement. It criminalises 35 actions and omissions through 13 provisions. These include
criminalisation of acts such as failing to pay tax deducted at source
59
, under-reporting one’s income
to evade payment of tax
60
, and making a false statement in any verification
61
.
58 Actions or omissions that are punishable by 1961 Act have been identified by breaking down the 15 criminal provisions.
59 Section 476, Income-tax Act, 2025
60 Section 478, Income-tax Act, 2025
61 Section 482, Income-tax Act, 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance iv
A snapshot of offences and punishments
35 actions and omissions are criminalised under the Act.
All offences are punishable with imprisonment and fine.
Mandatory minimum imprisonment, with terms ranging from 3 months to 6 months, is
prescribed for 25 offences.
Judicial discretion, to choose whether a fine is to be imposed or not along with
imprisonment, is available in only one offence.
Terms of maximum imprisonment range from 1 year to 7 years.
3 offences are
punishable with a
maximum of 1 year
of imprisonment
17 offences are
punishable with a
maximum of 2 years
of imprisonment
1 offence is
punishable with a
maximum of 3 years
of imprisonment
13 offences are punishable
with a maximum of 7 years
of imprisonment
The form of imprisonment for all offences, except one, is rigorous.
Repeat offences carry enhanced punishments.
19 offences carry an enhanced punishment
for second and subsequent commission.
All these offences are punishable with a maximum of
7 years of imprisonment and a mandatory minimum
of 6 months imprisonment.
While fines are prescribed mandatorily, their quantum is not specified.
34 offences carry
mandatory fines in addition
to imprisonment.
Only one offence allows the
court discretion in imposing
fines.
The quantum of fines for all offences
have also been left to the court’s
discretion. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance v
Tax evasion
Making false entries,
accounts, or statements
Fraudulently hiding,
concealing, or removing
property
Failing to furnish returns
Failing to produce
documents or accounts
Abetting a false return,
account, statement, or
declaration
Obstructing a public
servant
Fig: Categories of offences criminalised by the Act
Offences Under the Income-tax Act, 2025
The table below provides a detailed breakdown of all the actions and omissions that attract criminal
punishment under the Act. To provide a comprehensive view of the extent of criminalisation, the
provisions have been broken down and simplified to clearly identify each action or omission that is
criminalised.
S. No. Offence in the Income-tax Act, 2025
Punishment for first
commission
Changes
from the 1961
Act
1 Contravening an order of deemed seizure of any valuable
article or thing if it is not possible or practicable to
take physical possession or removal to a safe place of
such article or thing, due to its volume, weight, or other
physical characteristics or it being of a dangerous nature,
by removing or parting or otherwise dealing with such
article or thing, without permission of the authorised
officer.
[Section 473 r/w Section 247(4)(a)(i)]
Rigorous imprisonment
up to 2 years and fine.
No change
2 Contravening an order prohibiting removal, parting or
dealing of any books of account, documents, computer
systems, asset, bank account, if it was not practicable
to seize the same, without permission of the authorised
officer.
[Section 473 r/w Section 247(4)(b)(i)]
Rigorous imprisonment
up to 2 years and fine.
No change Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance vi
3 Failing to provide reasonable technical and other
assistance, including the access code, for inspection
of books of account or other documents, which have
been maintained in the form of electronic record on any
computer system.
[Section 474 r/w Section 247(1)(ii)]
Rigorous imprisonment
up to 2 years and fine.
No change
4 Fraudulently removing any property or interest to any
person, with the intent to prevent such property or
interest from being taken in execution of a certificate.
[Section 475]
Rigorous imprisonment
up to 2 years and fine.
The terms of
execution of
the certificate
will now be
prescribed by
the Central
Government
through rules.
Previously, they
were prescribed
in the Act itself.
5 Fraudulently concealing any property or interest to
any person, with the intent to prevent such property or
interest from being taken in execution of a certificate.
[Section 475]
Rigorous imprisonment
up to 2 years and fine.
The terms of
execution of
the certificate
will now be
prescribed by
the Central
Government
through rules.
Previously, they
were prescribed
in the Act itself.
6 Fraudulently transferring or delivering any property or
interest to any person, with the intent to prevent such
property or interest from being taken in execution of a
certificate.
[Section 475]
Rigorous imprisonment
up to 2 years and fine.
The terms of
execution of
the certificate
will now be
prescribed by
the Central
Government
through rules.
Previously, they
were prescribed
in the Act itself.
7 Failing to pay tax deducted at source as required by or
under provisions relating to collection, recovery of tax,
deduction and collection at source, to the credit of the
Central Government.
[Section 476(1)(a)]
Rigorous imprisonment
up to 7 years, but not less
than 3 months, and fine.
A person who
pays the tax
deducted at
source before
the time
prescribed by
the Central
Government,
will not be
charged under
this provision. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance vii
8 Person responsible for releasing the winnings for any
lottery, crossword puzzle, card game, gambling, bettering
or any other online game, failing to pay or ensure
payment of tax that is deducted on such winnings, where
it is wholly in kind, or is partly in kind and partly in cash
but where the part in cash is not sufficient to meet the
liability of deduction of tax, to the credit of the Central
Government, before releasing the winnings.
[Section 476(1)(b) r/w Note 2 below Table in Section
393(3)]
Rigorous imprisonment
up to 7 years, but not less
than 3 months, and fine.
A person who
pays the tax
collected at
source before
the time
prescribed by
the Central
Government,
will not be
charged under
this provision.
9 Person providing any benefit, perquisite or consideration
failing to pay or ensure payment of tax that is deducted
on such benefit, perquisite or consideration, where there
is no part in cash (in respect of virtual digital assets), or
is wholly in kind, or is partly in kind and partly in cash
but where the part in cash is not sufficient to meet the
liability of deduction of tax, to the credit of the Central
Government.
[Section 476(1)(b) r/w Note 6 to Section 393(1) (Table Sl.
No. 8)]
Rigorous imprisonment
up to 7 years, but not less
than 3 months, and fine.
A person who
pays the tax
collected at
source before
the time
prescribed by
the Central
Government,
will not be
charged under
this provision.
10 Person or employer responsible for paying any income
in the nature of a non-monetary perquisite which is
chargeable to tax, failing to pay the tax deducted,
collected or determined on such perquisite, to the credit
of the Central Government.
[Section 477(1) r/w Section 397(3)(a), Section 392(2)(a)]
Rigorous imprisonment
up to 7 years, but not less
than 3 months, and fine.
A person who
pays the tax
collected at
source before
the time
prescribed by
the Central
Government,
will not be
charged under
this provision.
11 Wilfully attempting to evade the payment of any
tax, penalty, or interest chargeable or imposable, by
possessing or controlling any books of account or other
documents containing a false entry or statement, where
the amount sought to be evaded exceeds twenty-five lakh
rupees.
[Section 478(1)(a) r/w Section 478(4)(a)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No substantive
change, minor
textual changes
in the provision.
12 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by making or
causing any false entry or statement to be made in books
of account or other documents, where the amount sought
to be evaded exceeds twenty-five lakh rupees.
[Section 478(1)(a) r/w Section 478(4)(b)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No substantive
change, minor
textual changes
in the provision. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance viii
13 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by wilfully
omitting or causing any relevant entry or statement to be
omitted in books of account or other documents, where
the amount sought to be evaded exceeds twenty-five lakh
rupees.
[Section 478(1)(a) r/w Section 478(4)(c)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No substantive
change, minor
textual changes
in the provision.
14 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by causing
any circumstance to exist which may have the effect
of enabling one to evade any tax, penalty, or interest
chargeable or imposable, or the payment of such tax,
penalty, interest, where the amount sought to be evaded
exceeds twenty-five lakh rupees.
[Section 478(1)(a) r/w Section 478(4)(d)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No substantive
change, minor
textual changes
in the provision.
15 Wilfully under-reporting one’s income, where the tax on
under-reported income exceeds twenty-five lakh rupees.
[Section 478(1) r/w Section 478(1)(a)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No substantive
change, minor
textual changes
in the provision.
16 Wilfully under-reporting one’s income, where the tax on
under-reported income does not exceed twenty-five lakh
rupees.
[Section 478(1) r/w Section 478(1)(b)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No substantive
change, minor
textual changes
in the provision.
17 Wilfully attempting to evade the payment of any
tax, penalty, or interest chargeable or imposable, by
possessing or controlling any books of account or other
documents containing a false entry or statement, where
the amount sought to be evaded does not exceed
twenty-five lakh rupees.
[Section 478(1)(b) r/w Section 478(4)(a)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No substantive
change, minor
textual changes
in the provision.
18 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by making or
causing any false entry or statement to be made in books
of account or other documents, where the amount sought
to be evaded does not exceed twenty-five lakh rupees.
[Section 478(1)(b) r/w Section 478(4)(b)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No substantive
change, minor
textual changes
in the provision. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance ix
19 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by wilfully
omitting or causing any relevant entry or statement to
be omitted in books of account or other documents,
where the amount sought to be evaded does not exceed
twenty-five lakh rupees.
[Section 478(1)(b) r/w Sectionc478(4)(c)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No substantive
change, minor
textual changes
in the provision.
20 Wilfully attempting to evade the payment of any tax,
penalty, or interest chargeable or imposable, by causing
any circumstance to exist which may have the effect
of enabling one to evade any tax, penalty, or interest
chargeable or imposable, or the payment of such tax,
penalty, interest, where the amount sought to be evaded
does not exceed twenty-five lakh rupees.
[Section 478(1)(b) r/w Section 478(4)(d)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No substantive
change, minor
textual changes
in the provision.
21 Wilfully attempting to evade the payment of any tax,
penalty or interest under this Act, in any manner.
[Section 478(2)]
Rigorous imprisonment
up to 2 years, but not
less than 3 months, with
or without fine, as per
court’s discretion.
22 Wilfully failing to furnish the return of income in due
time as required, where the amount of tax which would
have been evaded if the failure had not been discovered
exceeds twenty-five lakh rupees.
[Section 479(1)(a) r/w Section 263(1), Section 268(1) and
Section 280]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
Offence of
failure to file
fringe returns
has been
omitted.
23 Wilfully failing to furnish the return of income in due time
as required, where the amount of tax which would have
been evaded if the failure had not been discovered does
not exceed twenty-five lakh rupees.
[Section 479(1)(b) r/w Section 263(1), Section 268(1) and
Section 280]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
Offence of
failure to file
fringe returns
has been
omitted. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance x
24 Wilfully failing to furnish the return of total income in
due time as required by notice given by the Assessing
Officer in the case where any search has been initiated or
requisition is made.
[Section 480 r/w Section 294(1)(a)]
Rigorous imprisonment
up to 3 years, but not less
than 3 months, and fine.
Omitted a
proviso which
exempted
persons from
being charged
under this
provision, who
were searched
during a specific
time period
(between
30.7.1995 and
1.1.1997).
25 Wilfully failing to produce, or to cause to be produced the
accounts and documents referred to in a notice served by
the Assessing Officer.
[Section 481 r/w Section 268(1)]
Rigorous imprisonment
up to 1 year, and fine.
No change
26 Wilfully failing to comply with a direction issued by the
Assessing Officer, to get the accounts audited by an
accountant and furnish the report.
[Section 481 r/w Section 268(5)(i)]
Rigorous imprisonment
up to 1 year, and fine.
No change
27 Wilfully failing to comply with a direction issued by the
Assessing Officer, to get the inventory valued by a cost
accountant and furnish the report.
[Section 481 r/w Section 268(5)(ii)]
Rigorous imprisonment
up to 1 year, and fine.
No change
28 Knowingly making a false statement in any verification
under the Act or under any rules made thereunder, where
the amount of tax that would have been evaded if the
statement had been accepted as true exceeds twenty-five
lakh rupees.
[Section 482(a)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No change
29 Knowingly delivering a false account, where the amount
of tax that would have been evaded if the account had
been accepted as true exceeds twenty-five lakh rupees.
[Section 482(a)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
No change
30 Knowingly making a false statement in any verification
under the Act or under any rules made, where the amount
of tax that would have been evaded if the statement had
been accepted as true does not exceed twenty-five lakh
rupees.
[Section 482(b)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No change Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xi
31 Knowingly delivering a false account, where the amount
of tax that would have been evaded if the account had
been accepted as true does not exceed twenty-five lakh
rupees.
[Section 482(b)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No change
32 Wilfully making any false entry or statement in any books
of account or other document relevant or useful in any
proceedings under the Act, with the intent to enable any
other person to evade any tax, interest or penalty.
For the purposes of establishing the charge under this
section, it shall not be necessary to prove that the second
person has actually evaded any tax, penalty or interest
chargeable or imposable under this Act.
[Section 483]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
No change
33 Knowingly inducing any person to make or deliver a false
account, statement or declaration relating to any income
chargeable to tax, where the amount of tax, penalty or
interest which would have been evaded if the account,
statement or declaration had been accepted as true
exceeds twenty-five lakh rupees.
[Section 484(a) r/w Section 484(i)]
Rigorous imprisonment
up to 7 years, but not less
than 6 months, and fine.
Omission of
fringe benefit
from the
provision.
34 Knowingly inducing any person to make or deliver a false
account, statement or declaration relating to any income
chargeable to tax, where the amount of tax, penalty or
interest which would have been evaded if the account,
statement or declaration had been accepted as true does
not exceed twenty-five lakh rupees.
[Section 484(a) r/w Section 484(ii)]
Rigorous imprisonment
up to 2 years, but not less
than 3 months, and fine.
Omission of
fringe benefit
from the
provision.
35 Furnishing any information or producing any document as
a public servant, in contravention of a notification made
by the Central Government prohibiting the same.
[Section 494 r/w Section 258(3)]
Imprisonment up to 6
months and fine.
No change Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xii
Offences Decriminalised by the Income-tax Act, 2025
Even as the Act largely continues to rely on criminalisation to enforce compliances, it has removed
certain actions and omissions from the purview of criminalisation. Some provisions have been
amended and some have been entirely omitted, indicating an effort to ease the unnecessary and
disproportionate burden of criminalisation on the citizens. The table below enumerates these actions
and omissions.
S. No.Offence in the Income-tax Act, 1961
1 Liquidator of any company being wound up failing to give notice to the Assessing Officer of appointment
within thirty days of such appointment.
[Section 276A(i) r/w Section 178(1)(a)]
2 Receiver of any assets of any company fails to give notice to the Assessing Officer of appointment within
thirty days of such appointment.
[Section 276A(i) r/w Section 178(1)(b)]
3 Liquidator of any company failing to set aside an amount equal to the amount notified by the Assessing
Officer.
[Section 276A(ii) r/w Section 178(3)(b)]
4 Liquidator of any company parting with any assets of the company or the properties in their hands
without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner.
[Section 276A(iii) r/w Section 178(3)(a)]
5 Doing or omitting to do anything which will effectively transfer any immovable property without the no
objection certification of the appropriate authority.
[Section 276AB r/w Section 269UL(2)]
6 Failing to surrender or deliver possession of the property to the appropriate authority within fifteen days in
respect of which order has been made by the appropriate authority.
[Section 276AB r/w Section 269UE(2)]
7 Effecting the transfer of any immovable property of value exceeding five lakh rupees without a written
agreement between the parties to the transfer, drawn up four months before the intended date of transfer.
[Section 276AB r/w Section 269UC] Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xiii
8 An employer wilfully failing to furnish return of fringe benefits of the previous year corresponding to the
relevant assessment year to the Assessing Officer within thirty days after being issued a notice where the
amount of tax which would have been evaded if the failure had not been discovered exceeds twenty-five
hundred thousand rupees.
[Section 276CC(i) r/w Section 115WH]
9 An employer wilfully failing to furnish return of fringe benefits of the previous year corresponding to the
relevant assessment year to the Assessing Officer within thirty days after being issued a notice where
the amount of tax which would have been evaded if the failure had not been discovered does not exceed
twenty-five hundred thousand rupees.
[Section 276CC(ii) r/w Section 115WH]
10 An employer wilfully failing to furnish return of fringe benefits to the Assessing Officer within thirty days
after being issued a notice where the amount of tax which would have been evaded if the failure had not
been discovered exceeds twenty-five hundred thousand rupees.
[Section 276CC(i) r/w Section 115WD(2)]
11 An employer wilfully failing to furnish return of fringe benefits to the Assessing Officer within thirty days
after being issued a notice where the amount of tax which would have been evaded if the failure had not
been discovered does not exceed twenty-five hundred thousand rupees.
[Section 276CC(ii) r/w Section 115WD(2)]
12 An employer wilfully failing to furnish return of fringe benefits to the Assessing Officer in a case where the
amount of tax which would have been evaded if the failure had not been discovered exceeds twenty-five
hundred thousand rupees.
[Section 276CC(i) r/w Section 115WD(1)]
13 An employer wilfully failing to furnish return of fringe benefits to the Assessing Officer where the amount
of tax which would have been evaded if the failure had not been discovered does not exceed twenty-five
hundred thousand rupees.
[Section 276CC(ii) r/w Section 115WD(1)]
Examining Cognisability and Compoundability
For all offences that are laid down in the Chapter XXII (Offences and Prosecution), no prosecution
can be initiated against any person without the previous sanction of the Principal Commissioner
or Commissioner or Joint Commissioner (Appeals) or Commissioner (Appeals).
62
For initiating
prosecution against a public servant for disclosure of particulars, the previous sanction of the Central
Government is mandatory.
63
62 Section 491, Income-tax Act, 2025
63 Section 494(2), Income-tax Act, 2025 Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xiv
The majority of the offences (23 offences), have been classified as non-cognisable, meaning that
investigation and arrest in such cases are subject to the magistrate’s authorisation. These are
enumerated under the following provisions:
1. Section 476: Failure to pay tax to credit of Central Government under Chapter XIX-B.
2. Section 478: Wilful attempt to evade tax, etc.
3. Section 479: Failure to furnish returns of income.
4. Section 480: Failure to furnish return of income in search cases.
5. Section 482: False statement in verification, etc.
6. Section 484: Abetment of false return, etc.
The remaining 12 offences, which are classified as cognisable offences, are enumerated under the
following provisions:
1. Section 473: Contravention of order made under section 247.
2. Section 474: Failure to Comply with section 247 1(ii)
3. Section 475: Removal, concealment, transfer or delivery of property to prevent tax recovery.
4. Section 477: Failure to pay tax collected at source.
5. Section 481: Failure to produce accounts and documents.
6. Section 494: Disclosure of particulars by public servants.
Furthermore, all offences under the Chapter may be compounded at any stage, before or after the
institution of proceedings, by the Principal Chief Commissioner or Chief Commissioner or a Principal
Director General or Director General. This has the effect of allowing the accused to settle the dispute,
in all offences, through the authority vested in the enumerated officials, without the need for a
lengthy trial.
Conclusion
The analysis above reflects ongoing efforts to decriminalise certain offences, in alignment with the
Government of India’s initiatives to foster trust-based governance and enhance ease of living and
doing business.
However, the analysis also highlights the continued reliance on criminalisation to enforce compliance
and facilitate tax recovery, an approach that, at least for some offences, appears disproportionate and
excessively harsh. For instance, the use of jail terms for all offences, mandatory minimum sentences,
and the lack of judicial discretion to choose between fines and imprisonment result in even minor
infractions attracting stringent punishments.
There is, therefore, a need to revisit some of these offences, examine the necessity of criminalisation,
and identify provisions that can be decriminalised or where punishments can be rationalised to
ensure a more balanced and proportionate approach to tax enforcement. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xv
Annexure II: Guidance note for prosecution of income-tax cases
The Central Board of Direct Taxes (CBDT) issues circulars for initiation of prosecution under the
erstwhile Income-tax Act, 1961 (‘Act’). These circulars recognise that certain pre-conditions must be
met before any person is prosecuted and that prosecution should only be initiated in serious cases
involving fraud and fabrication of evidence.
To this end, this note seeks to guide the prosecution under the Act and assists officers in a manner
that prosecution is invoked only in appropriate cases and after all civil remedies are exhausted. It
seeks to protect the integrity of tax administration, enable tax officials to carry out prosecution
where necessary, and protect the rights of honest taxpayers by ensuring consistency, transparency,
and fairness in enforcement.
The note presents various considerations that can supplement the independent assessment made
by officers. However, these considerations are merely indicative and not exhaustive, and are not
meant to replace statutory guidelines.
A. Guiding principles
1. Prosecution as a last resort: Prosecution should not be the first and only tool to enforce
compliance. It must only be initiated in cases of serious and fraudulent conduct. Mere
technical, procedural, or negligent non-compliances should not attract criminal prosecution.
2. Proportionality and harm: Prosecution should only be considered when the default results in
clear, direct, and substantial harm to public revenue or obstructs the functioning of the tax
system in a clear and direct way.
3. Civil and administrative remedies preferred: Where monetary penalties, interest recovery, or
compounding are effective, they should be prioritised.
4. Safeguards and review: All prosecutions below the specified monetary thresholds must
have necessary approvals before initiation. Every recommendation for prosecution must be
supported by a detailed speaking order of the competent authority where applicable.
5. Opportunity for voluntary compliance: Taxpayers must be given a reasonable opportunity to
comply voluntarily and rectify errors prior to initiating any criminal prosecution. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xvi
B. General pre-prosecution considerations
All Assessing Officers must abide by the statutory mandate of the Act as well as guidelines issued by
CBDT to decide whether prosecution should be initiated or not. Following are some considerations
to aid an officer’s independent assessment to make such a decision:
General Pre-Prosecution Considerations
S.
No.
QuestionsYes/No Remarks
1. Is the offence compoundable under CBDT guidelines?
2.
Has the taxpayer been offered an opportunity to rectify the error or comply
voluntarily?
3. Has the offence resulted in substantial revenue loss exceeding Rs. 1 crore?
4. Is there clear evidence of wilful default or fraud?
5.
Have civil remedies (e.g., penalty orders, interest recovery) been initiated and taken
to conclusion?
6.
Has the matter been reviewed and approved by the Competent Authority and
Collegium (if applicable)?
7. Is the offence a minor or procedural lapse that can be rectified or remedied?
8. Are there any aggravating factors such as repeated violations?
9.
Has the assessee been given notice and opportunity to apply for compounding
before prosecution?
C. Provision-specific prosecution considerations
a. Section 478. Wilful attempt to evade tax, etc.
Pre-Prosecution Considerations
Section 478(1) – Wilful attempt to evade tax, penalty, or interest
S. No.QuestionsYes/No Remarks
1. Is the evasion amount above Rs. 1 crore?
2.
Is there material on record (false books, false entries, omitted entries) showing
wilful evasion?
3.
Has the assessment been finalised, and has the assessee failed to file an appeal or
rectification?
4.
Has an opportunity to pay outstanding dues voluntarily been provided and
ignored? (Number of opportunities given to be noted)
5.
Has an order imposing civil penalties (under Section 439 or 444) been confirmed,
but not complied with?
6. Are compounding guidelines followed before prosecution?
Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xvii
b. Section 478. Wilful attempt to evade tax, etc
Pre-Prosecution Considerations
Section 478(2) – Wilful attempt to evade tax, penalty, or interest
S. No.QuestionsYes/No Remarks
1. Is there an outstanding demand confirmed by assessment or appellate authority?
2.
Has the assessee wilfully diverted assets, concealed income, or transferred
property to avoid payment?
3. Has a recovery notice been issued and ignored?
4. Are there findings of concealment under Section 439 or Section 444?
5.
Have civil penalties (under Section 439 or Section 444) been imposed, but not
complied with?
c. Section 482. False statement in verification, etc.
Pre-Prosecution Considerations
Section 482 – False statement in verification
S. No.QuestionsYes/No Remarks
1.
Has a false statement been filed in a return, verification, affidavit or document
submitted?
2.
Is there clear evidence of intentional falsification in the statement, which is not on
account of clerical error or interpretation dispute?
3. Has the falsity been established post-assessment or through other proceedings?
4. Could the false statement materially affect computation of tax liability?
d. Section 484. Abetment of false return, etc.
Pre-Prosecution Considerations
Section 484 - Abetment of false returns, etc.
S. No.QuestionsYes/No Remarks
1.
Is there direct involvement of chartered accountants, intermediaries, etc. in
preparing false returns or documents?
2.
Is there credible evidence (e.g. statements, emails, financial trails) that such
chartered accountant, intermediary, etc. has instigated, engaged, or intentionally
aided in evasion? Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xviii
D. Additional safeguards across all offences
Officers should actively encourage compounding where appropriate, and ensure applications are
dealt with promptly under CBDT Compounding Guidelines (2024). The applicants should be informed
that compounding is not an admission of guilt. In addition, prosecution may not be pursued:
a. If the default is technical, clerical, or without malafide intent;
b. If the taxpayer has voluntarily complied before detection;
c. If the tax involved is below thresholds set in CBDT Circulars;
d. Where compounding is opted and accepted;
e. For financial hardship or first-time defaults.
E. Documentation and recording of reasons
All requests for sanction of prosecution must be accompanied by:
a. Detailed justification for initiation of proceedings.
b. Assessment records supporting wilful default or non-compliance.
c. Approval of Collegium or Competent Authority, wherever applicable.
d. Record of compounding opportunity and taxpayer response.
e. Views/remarks on pre-prosecution considerations. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xix
Annexure III: Criminal provisions and corresponding penalty
provisions in the Income-tax Act, 2025
Criminal provision Punishment Penalty
Civil penalty
provision
Section 473.
Contravention of order
made under section 247
Rigorous imprisonment up to 2
years and fine.
No corresponding civil penalty section
Section 474. Failure to
comply with section
247(1)(ii)
Rigorous imprisonment up to 2
years and fine.
No corresponding civil penalty section
Section 475. Removal,
concealment, transfer or
delivery of property to
prevent tax recovery
Rigorous imprisonment up to 2
years and fine.
No corresponding civil penalty section
Section 476. Failure
to pay tax to credit of
Central Government
under Chapter XIX-B
Rigorous imprisonment up to
7 years, but not less than 3
months, and fine.
Penalty equal to the
tax which such person
failed to deduct or pay
or ensure payment of.
Section 448. Penalty for
failure to deduct tax at
source
[Only addresses failure
to pax tax deducted as
per Section 393(3) and
393(1), and failure to
deduct tax at source.
The provision does not
address the act of failing
to pay tax deducted at
source.]
Section 477. Failure to
pay tax collected at
source
Rigorous imprisonment up to
7 years, but not less than 3
months, and fine.
No corresponding civil penalty section
Section 478. Wilful
attempt to evade tax,
etc.
Evasion more than Rs. 25 lakh:
Rigorous imprisonment up to
7 years, but not less than 6
months, and fine.
Evasion less than Rs. 25 lakh:
Rigorous imprisonment up to
2 years, but not less than 3
months, and fine.
Only addresses tax
evasion as a result of
underreporting:
1. 50% of tax
payable in
cases of
underreporting.
2. 200% of tax
payable for
underreporting
which is a result
of misreporting.
Section 439. Penalty
for underreporting and
misreporting of income.
Only addresses tax
evasion due to false or
omitted entry: Penalty
equal to aggregate
amount of false or
omitted entry.
Section 444. Penalty for
false entry, etc., in books
of account Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xx
Section 479. Wilful failure
to furnish returns of
income
Evasion more than Rs. 25 lakh
Rigorous imprisonment up to
7 years, but not less than 6
months, and fine.
Evasion less than Rs. 25 lakh:
Rigorous imprisonment up to
2 years, but not less than 3
months, and fine.
Rs. 10,000 for each
default or failure (For
all cases except failing
to furnish return of
income in response to
notice under Section
280).
Section 465. Penalty
for failure to answer
questions, sign
statements, furnish
information, returns
or statements, allow
inspections, etc.
Section 480. Wilful
failure to furnish return
of income in search/
requisition cases
Rigorous imprisonment up to
3 years, but not less than 3
months, and fine.
No corresponding civil penalty section
Section 481. Wilful failure
to produce accounts and
documents
Rigorous imprisonment up to 1
year, and fine.
Rs. 10,000 for each
default or failure (For
all cases except failing
to furnish return of
income in response to
notice under Section
280).
Section 465. Penalty
for failure to answer
questions, sign
statements, furnish
information, returns
or statements, allow
inspections, etc.
Section 482. False
statement in verification,
etc.
Evasion more than Rs. 25 lakh:
Rigorous imprisonment up to
7 years, but not less than 6
months, and fine.
Evasion less than Rs. 25 lakh:
Rigorous imprisonment up to
2 years, but not less than 3
months, and fine.
No corresponding civil penalty section
Section 483 –
Falsification of books of
account or document,
etc.
Rigorous imprisonment up to
2 years, but not less than 3
months, and fine.
Penalty equal to
aggregate amount of
false or omitted entry.
Section 444. Penalty for
false entry, etc., in books
of account
Section 484 – Abetment
of false return, etc.
Evasion more than Rs. 25 lakh
Rigorous imprisonment up to
7 years, but not less than 6
months, and fine.
Evasion less than Rs. 25 lakh:
Rigorous imprisonment up to
2 years, but not less than 3
months, and fine.
Penalty equal to
aggregate amount of
false or omitted entry.
Section 444. Penalty for
false entry, etc., in books
of account
Section 494 – Disclosure
of particulars by public
servants
Imprisonment up to 6 months
and fine.
No corresponding civil penalty section Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xxi
Annexure IV: Sample draft provisions
Scope of redrafting Current Provision Redrafted Provision
Some of the criminal provisions
in the Act rely on complex cross-
referencing and do not clearly
express what act or omission is
being criminalised.
To ensure provisions are not vague
or ambiguous, the redrafted
provision can be considered as
a sample of how to simplify the
criminal provisions and clearly
express the conduct being
criminalised.
Section 473. Contravention of order
made under section 247. -
Whoever contravenes any order
referred to in section 247(4)
shall be punishable with rigorous
imprisonment which may extend
to 2 years and shall also be liable
to fine.
Section 473. Contravention of order made
under Section 247. - (1) Any person whom
without the permission of the authorised
officer, does any of the following–
(a) Removes, parts, or otherwise deals with
any valuable article or thing that are subject
to an order of deemed seizure as issued
under Section 247(4)(a)(i), or
(b) Removes, parts, or otherwise deals with
any books of account, other documents,
computer systems, asset, bank locker, bank
account, that are subject to a prohibitory
order issued under Section 247(4)(b)(i),
shall be punishable with rigorous
imprisonment of up to 2 years and shall also
be liable to fine. Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xxii
For various offences, the provisions
in the Act lack any requirement of
malafide or fraudulent intent for
prosecution.
To ensure proportionality in
criminalisation, the sample
redrafted provision adds an
element of fraudulent intent to the
criminalised act.
Section 482. False statement in
verification, etc
If a person makes a statement in
any verification under this Act or
under any rule made thereunder, or
delivers an account or statement
which is false, and which he either
knows or believes to be false, or
does not believe to be true, he shall
be punishable,—
(a) in a case, where the amount of
tax, which would have been evaded
if the statement or account had
been accepted as true, exceeds
twenty-five lakh rupees, with
rigorous imprisonment for a term
which shall not be less than six
months but which may extend to
seven years and shall also be liable
to fine;
(b) in any other case, with rigorous
imprisonment for a term which
shall not be less than three months
but which may extend to two years
and shall also be liable to fine.
Section 482. False statement in verification,
etc
If a person fraudulently and with an intent
to evade tax, makes a statement in any
verification under this Act or under any rule
made thereunder, or delivers an account
or statement which is false, he shall be
punishable,—
(a) in a case, where the amount of tax,
which would have been evaded if the
statement or account had been accepted
as true, exceeds one crore rupees, with
imprisonment for a term may extend to
seven years or fine;
(b) in any other case, with imprisonment for
a term which may extend to two years or
fine.
Section 494. Disclosure of
particulars by public servants.
(1) A public servant, who furnishes
any information or produces any
document in contravention of the
provisions of section 258(3), shall
be punishable
with imprisonment which may
extend to six months and shall also
be liable
to fine.
(2) No prosecution shall be
instituted under this section except
with the
previous sanction of the Central
Government.
Section 494. Disclosure of particulars by
public servants.
(1) A public servant, who intentionally
furnishes any information or produces any
document in contravention of the provisions
of section 258(3), shall be punishable
with imprisonment which may extend to six
months or fine.
(2) No prosecution shall be instituted under
this section except with the
previous sanction of the Central
Government. Authors and Contributors (Consultative Group on Tax Policy)
»Dr. Pushpinder Singh Puniha, Distinguished Fellow, NITI Aayog
»Shri Sanjeet Singh, Program Director, NITI Aayog
»Shilpa Ahuja, Consultant, NITI Aayog
»Pulkit Tyagi, Young Professional, NITI Aayog
»Kushagra Tripathi, Young Professional, NITI Aayog Acknowledgement
I
n the course of developing the NITI Tax Policy Working Paper
Series – II on “Towards India’s Tax Transformation: Decriminalisation
and Trust-Based Governance,” we have been privileged to receive
valuable insights and perspectives from a wide range of experts and
stakeholders. These engagements have been instrumental in shaping our
analysis and ensuring that this Working Paper presents a comprehensive
and well-rounded perspective.
We are deeply grateful to our knowledge partner, the Vidhi Centre for
Legal Policy, for their rigorous research and legal analysis. We extend
our sincere thanks to Naveed Mehmood Ahmad, Ishaan Bamba, and
Ayushi Sharma for their detailed examination of statutory provisions,
comparative review of global practices, and thoughtful policy
recommendations that have greatly enriched this study.
Finally, we wish to thank the Dr P.S. Puniha and other members of
the Consultative Group on Tax Policy (CGTP) and other contributors
whose guidance and practical insights have significantly informed the
preparation of this Working Paper.
Mr. Sanjeet Singh
Program Director, Economics and Finance-II
NITI Aayog Towards India?s Tax Transformation: Decriminalisation and
Trust-Based Governance xxv