Strengthening Tax Compliance: Key Amendments to Prosecution Provisions in the Income Tax Act, 2025

Introduction to the Finance Bill, 2026 Amendments

The Finance Bill, 2026 introduces significant amendments to Sections 480-485 and 494 of the Income Tax Act, 2025, focusing on enhancing the prosecution framework for tax offences. These changes aim to balance stringent enforcement with procedural safeguards, effective from April 1, 2026. By introducing graded punishments, verification integrity measures, accountability for repeat offences, and confidentiality protections, the amendments complete the shift from structured enforcement to procedural integrity[2].

As a Chartered Accountant, understanding these updates is crucial for compliance advisory, audit practices, and risk management. The provisions deter false statements and wilful tax evasion while ensuring fair processes[2].

Graded Punishments for False Statements and Tax Evasion

Section 482 has been revised to impose punishments based on the tax evaded through false verifications or statements. The tiered structure ensures proportionality:

• Exceeds Rs 50 lakh: Simple imprisonment up to 2 years, or fine, or both[2].
• Exceeds Rs 10 lakh but ≤ Rs 50 lakh: Simple imprisonment up to 6 months, or fine, or both[2].
• Up to Rs 10 lakh: Fine only[2].

Impact on Section 482 Offences

Under amended Section 482, if a person knowingly or believably delivers a false statement in verification, punishment aligns with the potential tax evasion amount. This graded approach replaces uniform penalties, promoting deterrence without over-penalizing minor lapses[2].

Similar grading applies to abetment and wilful attempts under related sections, where tax, penalty, or interest evaded exceeds thresholds, ensuring repeat offenders face escalated accountability[2].

Safeguards for Verification Integrity and Confidentiality

Beyond punishments, the amendments introduce stronger safeguards. Verification processes now emphasize integrity, with accountability measures for repeat offences. This includes procedural checks to prevent misuse of statements in returns or proceedings[2].

Confidentiality Protections

Section 494 amendments bolster confidentiality, protecting sensitive taxpayer information during prosecutions. These measures align with global best practices, reducing risks of data breaches in enforcement actions and fostering trust in the tax system[2].

Procedural integrity is enhanced through clear guidelines on evidence handling and prosecution initiation, minimizing frivolous cases while upholding enforcement[2].

Implications for Taxpayers, CAs, and Businesses

For taxpayers, these changes underscore the importance of accurate filings. Graded penalties incentivize voluntary compliance, but wilful defaults carry severe consequences, especially for high-value evasions[2].

Chartered Accountants must adapt audit and certification practices. Enhanced due diligence in verifications like Form 15CB is vital, as courts have shielded CAs from undue PMLA liability absent knowledge of forgery[12][14]. ICAI’s evolving SOPs for legal investigations further guide professionals[8].

• Risk Mitigation: Implement robust internal controls and documentation for verifications.
• Compliance Planning: Advise clients on thresholds to avoid prosecution triggers.
• Forensic Readiness: Leverage ICAI frameworks for fraud detection in engagements[6][10].

Businesses face heightened scrutiny on cross-border reporting and asset declarations. Integrating these amendments into tax strategies will be essential post-April 2026[2].

Conclusion: Navigating the New Prosecution Landscape

The Finance Bill, 2026 amendments mark a mature evolution in India’s tax prosecution framework, prioritizing fairness and deterrence. Stakeholders should proactively review processes to align with these changes, ensuring sustained compliance in an increasingly rigorous environment[2].