The central government may decriminalise minor income tax offences and replace prosecution with penalties as part of its agenda for the first 100-days. The news was broken by MoneyControl, which cited a senior government official, stating that the move was aimed at enhancing the ease of doing business.
This decision, if passed, would address a long-standing demand from the industry that aims to find a more business-friendly environment.
Internal discussions within the government are ongoing to determine the threshold for compounding offences.
Currently, the provisions of tax laws have not been decriminalised, and the government’s stance has been to prosecute income tax offences. However, there will now be a shift towards compounding such offences to avoid prosecution, imposing penalties instead for minor infractions.
At present, criminal prosecution can be triggered even for trivial offences like delayed payment of tax deducted at source (TDS), which can result in directors of companies being prosecuted under various sections of the Act, with potential imprisonment ranging from three months to seven years.
Delayed TDS payments pose significant issues as they lead to the prosecution of company directors. The industry has suggested that such delays should be treated as civil liabilities and should incur penalties rather than criminal prosecution. This approach, they argue, would serve as a deterrent while fostering trust between taxpayers and authorities.
In previous stakeholder discussions, the industry sought the decriminalisation of 50-60 provisions in tax laws, including those related to direct tax, GST, and customs.
In the 2024 Interim Budget, Finance Minister Nirmala Sitharaman announced a waiver of trivial outstanding direct tax demands. This applied to direct tax demands of up to Rs 25,000 for the period up to 2009-10. The Centre also waived off outstanding disputes related to amounts up to Rs 10,000, betweent the financial years 2010-11 and 2014-15.
Following the conclusion of the 2024 General Elections, Sitharaman is gearing up to announce her seventh Budget.
This step by the government is expected to build an environment of trust between taxpayers and authorities, thereby boosting the overall ease of doing business in India.
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