The debate is back again concerning criminal prosecution for tax defaults. The Bombay Chartered Accountants’ Society (BCAS), in its post-Budget representation on the Finance Bill, 2026, has advised full decriminalisation of offences pertinent to TDS/TCS lapses and return filing delays. BCAS observed that the existing provisions are overly punitive for unintentional mistakes.
BCAS, in its memorandum filed before the Finance ministry last month, has claimed that the honest taxpayers must not encounter criminal prosecution for administrative errors, accounting oversights, or temporary cash flow problems.
The Finance Bill, 2026, has proposed partial decriminalisation of specific tax offences. However, BCAS assumes that the same is not adequate.
Within the existing law, prosecution can be launched even if no fake intent is present.
In other words, the government does not required to prove that the taxpayer intentionally committed wrongdoing. As per BCAS, the same is against the basic principles of criminal law.
According to BCAS, NITI Aayog had suggested complete decriminalisation of TDS/TCS and return filing offences, mentioning that genuine business hardships must not be acknowledged as criminal acts.
Concerns Raised Over Reverse Burden on Taxpayers
BCAS shows the “reverse burden of proof” as the most controversial provision u/s 490 of the Income-tax Act, 2025 (earlier Section 278E of the 1961 Act).
At present, after initiation of the prosecution, the taxpayer is required to establish their innocence beyond a reasonable doubt. In normal criminal law, it is the government’s responsibility to prove guilt, not the accused’s duty to prove their innocence.
BCAS suggested eliminating the reverse burden clause and restoring the standard principle that the Tax Department should establish the offence.
As per the memorandum, the same revision shall bring tax prosecution provisions within the established criminal jurisprudence.
Tighter Immunity Rules Could Disadvantage Genuine Taxpayers
Under the proposed provision, once prosecution proceedings are initiated under Chapter XXII, the taxpayer will be barred from seeking immunity from both penalty and prosecution.
BCAS has mentioned the same as too broad and unfair.
For instance, if a taxpayer encounters prosecution in one year for a TDS default, they may be refused immunity in another year for an unrelated problem, like underreporting of income. This stops the objective of dispute resolution provisions.
Also Read: Quarterly TDS/TCS Return Filing Due Dates
The society has recommended either removing the same restriction altogether or limiting it merely to prosecutions arising from the same issue for which immunity is being sought.
Its Significance
As per tax experts, the purpose of reforms is to streamline the operations of business and lessen the litigation. But criminal prosecution for technical or procedural lapses produces fear and uncertainty for small and mid-sized businesses.
BCAS has outlined that tax administration must differentiate between intentional tax evasion and genuine compliance failures. Considering both the same, it claims, discourages voluntary compliance instead of promoting the same.
The Bigger Picture
With the government focusing on digitisation and simplification of tax statutes, industry bodies may support the demand for full decriminalisation.
Recommended: How Income Tax Software Assists Taxpayers After the Filing?
If accepted, these recommendations could greatly reduce litigation and align India’s tax prosecution framework with global best practices.
Currently, many are watching to see if the Finance Ministry will implement these changes while finalising the Finance Bill, 2026.
