While presenting the Union Budget 2026, Finance Minister Nirmala Sitharaman hinted at a major reform in the country’s tax administration. India’s new Income-tax Act, 2025 will come into effect from April 1, 2026, and a significant change is being made in the penal system associated with it — the penalty for small or trivial tax evasion will be removed and only fines will be imposed.
Why this change?
For the past few years, the tax law has been based on strict punishment. The application of criminal provisions even in the case of many minor errors or administrative mistakes used to create legal hassles and long battles for taxpayers.
The government policy is now shifting towards helping to rectify/resolve instead of punishment, so that ordinary taxpayers do not get involved in unnecessary legal troubles and voluntarily fulfill their tax obligations.
What are the changes being made?
1. No jail term for petty or common offences:
Under the new provisions, petty offences such as non-disclosure of accounts, failure to furnish documents or documents, or tax-deduction-at-source (TDS) affected situations will no longer be punishable by jail. These will be directly penalised with fines.
2. Lighter punishment structure for serious offences:
Under the upcoming new law, where courts can still impose punishment, the maximum sentence has been reduced to 2 years even for serious offences and simple punishment or fines are being considered as the main punishment rather than harsh or long jail terms.
3. Evidence-based trial and favourable punishment:
The government aims to differentiate between intentional evasion and dishonest behaviour. In cases where it can be proven that the mistake was unintentional, stringent punishments are being imposed on those who are found to be guilty of a crime.