A threshold will be established to determine which minor offences to decriminalise.
In a landmark move aimed at boosting the ease of doing business, the Indian government is likely to decriminalise minor income tax offences within the next 100 days. A senior government official revealed that the Centre is addressing a long-standing demand from the industry to replace prosecution with penalties for minor infractions.
Boosting Business Confidence
The government’s plan includes to decriminalise specific provisions in the Income Tax Act. A threshold will be established to determine which minor offences qualify for decriminalisation. For these minor infractions, a penalty will suffice, thereby preventing prosecution. Historically, income tax offences have led to prosecution, but this policy shift is expected to enhance the business environment by fostering trust between taxpayers and authorities.
Focus on Ease of Doing Business
Currently, even trivial offences such as delayed payment of Tax Deducted at Source (TDS) can trigger criminal prosecution, potentially leading to imprisonment for company directors. The industry has advocated for treating TDS payment delays as a civil liability, punishable by penalties rather than criminal prosecution. This change aims to ensure that only grave offences warrant criminal charges.
Industry’s Role and Government Initiatives
The industry has been vocal about the need to decriminalise 50-60 provisions in tax laws, including those related to direct tax, GST, and customs. During recent stakeholder discussions, the industry reiterated the importance to decriminalise minor offences to reduce legal burdens and promote a more business-friendly climate.
The government has already taken steps to minimize tax litigation. Earlier this year, the interim Budget announced the waiver of trivial outstanding direct tax demands up to Rs 25,000 for the period up to 2009-10. Additionally, outstanding disputes involving amounts up to Rs 10,000 for the years 2010-11 to 2014-15 were also waived.
Moving Forward
Internal discussions within the government are ongoing to finalize the threshold for compounding offences. By eliminating prosecution for minor infractions and substituting penalties, the government aims to create a more conducive environment for businesses to thrive. This initiative is expected to significantly reduce the legal complexities businesses face, further enhancing India’s ease of doing business ranking.
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