New Delhi: Finance Minister Nirmala Sitharaman on Sunday proposed a set of direct tax proposals aiming at rationalising penalty and prosecution, to integrate assessment and penalty proceedings by way of a common order for both to avoid multiplicity of proceedings.
Non-production of books of account and documents, and the requirement of TDS payment, where payment is made in kind, are being decriminalised.
“Further, minor offences will attract a fine only. The remaining prosecutions will be graded commensurate with the quantum of offence. They will entail only simple imprisonment, with maximum imprisonment reduced to two years, and the power to courts to convert even those into a fine,” the Finance Minister said in her Budget 2026-27 speech.
There is also no penalty presently for non-disclosure of non-immovable foreign assets with an aggregate value less than Rs 20 lakh. The Finance Minister proposed to also provide them with immunity from prosecution with retrospective effect from October 1, 2024.
According to the Finance Minister, there will be no interest liability on the taxpayer on the penalty amount for the period of appeal before the first appellate authority, irrespective of the outcome of the appeal process.
Further, the quantum of pre-payment is being reduced from 20 per cent to 10 per cent and will continue to be calculated only on core tax demand, she said during her Budget speech.
The Finance Minister also proposed to allow taxpayers to update their returns even after reassessment proceedings have been initiated, at an additional 10 per cent tax rate over and above the rate applicable for the relevant year. The assessing officer will then use only this updated return in his proceedings.
She also proposed to apply this framework of immunity to misreporting, too. However, in such a case, the taxpayer will need to pay 100 per cent of the tax amount as an additional income tax over and above the tax and interest due.
Penalties for certain technical defaults, such as failure to get accounts audited, non-furnishing of transfer pricing audit report and default in furnishing statement for financial transactions, are proposed to be converted into a fee, according to the Finance Minister.
She also proposed to rationalise the prosecution framework under the Income Tax Act while maintaining a careful balance for deterrence in some serious offences.
(IANS)
