The debate over criminal prosecution for tax defaults is back in focus. In its post-Budget representation on the Finance Bill, 2026, the Bombay Chartered Accountants’ Society (BCAS) has strongly recommended full decriminalisation of offences related to TDS/TCS lapses and return filing delays. BCAS feels the current provisions are “overly punitive” for unintentional mistakes.
In its memorandum submitted to the Finance Ministry last month, BCAS has argued that honest taxpayers should not face criminal prosecution for administrative errors, accounting oversights or temporary cash flow problems.
What is the core issue?
The Finance Bill, 2026 has proposed partial decriminalisation of certain tax offences. However, BCAS believes this does not go far enough.
Under the current law, prosecution can be launched even if there is no fraudulent intent.
In other words, the government does not necessarily have to prove that the taxpayer deliberately committed wrongdoing. This, according to BCAS, goes against basic principles of criminal law.
BCAS has pointed out that even NITI Aayog had recommended full decriminalisation of TDS/TCS and return filing offences, noting that genuine business hardships should not be treated as criminal acts.
“Reverse burden” on taxpayers questioned
One of the most controversial provisions highlighted by BCAS is the “reverse burden of proof” under Section 490 of the Income-tax Act, 2025 (earlier Section 278E of the 1961 Act).
Currently, once prosecution is initiated, the taxpayer must prove their innocence beyond reasonable doubt. In normal criminal law, it is the government that must prove guilt — not the accused who must prove innocence.
BCAS has recommended removing this reverse burden clause and restoring the standard principle that the Tax Department must establish the offence.
According to the memorandum, this change would bring tax prosecution provisions in line with established criminal jurisprudence.
Immunity restriction could hurt genuine taxpayers
The Finance Bill has also proposed a new restriction: if any prosecution proceedings are initiated under Chapter XXII, the taxpayer cannot seek immunity from penalty and prosecution.
BCAS has flagged this as too broad and potentially unfair.
For example, if a taxpayer faces prosecution in one year for a TDS default, they may be denied immunity in another year for a completely unrelated issue like under-reporting of income. This defeats the purpose of dispute resolution provisions.
The society has suggested either deleting this restriction altogether or limiting it only to prosecutions arising from the same issue for which immunity is being sought.
Why this matters
Tax experts say the broader objective of recent reforms has been to improve ease of doing business and reduce litigation. However, criminal prosecution for technical or procedural lapses creates fear and uncertainty, especially for small and mid-sized businesses.
BCAS has emphasised that tax administration should distinguish between deliberate tax evasion and genuine compliance failures. Treating both the same, it argues, discourages voluntary compliance rather than promoting it.
The bigger picture
With the government focusing on digitisation and simplification of tax laws, the demand for full decriminalisation is likely to gather wider support from industry bodies.
If accepted, the recommendations could significantly reduce litigation and bring India’s tax prosecution framework closer to global best practices.
For now, all eyes are on whether the Finance Ministry will consider these changes while finalising the Finance Bill, 2026.
