Finance Minister Nirmala Sitharaman presented direct tax proposals to streamline penalty and prosecution processes, suggesting a unified order to avoid multiple proceedings. The Finance Minister highlighted the decriminalization of non-production of account books and documents, along with the TDS payment requirement for in-kind payments, with minor offenses attracting fines instead of prosecution.
In her Budget 2026-27 speech, Sitharaman mentioned that penalties for non-disclosure of non-immovable foreign assets valued below Rs 20 lakh would be waived with retrospective effect from October 1, 2024. She also announced that taxpayers would not face interest liability on penalty amounts during the appeal period before the first appellate authority.
Furthermore, the Finance Minister proposed a reduction in pre-payment from 20% to 10%, calculated solely on the core tax demand. Taxpayers would be allowed to update returns post reassessment proceedings by paying an additional 10% tax rate for the relevant year. In cases of misreporting, a 100% tax amount would be levied as additional income tax.
Sitharaman suggested converting penalties for technical defaults into fees, such as failure to audit accounts or furnish financial transaction statements. She aimed to rationalize the prosecution framework under the Income Tax Act while ensuring a balanced approach for serious offenses.
