Income Tax Offences: CBDT Issues New Compounding Rules to Shield Taxpayers from Prosecution

The income tax department on Thursday issued revised guidelines for compounding offences under the Income Tax law by simplifying the process and lowering the charges.

In conformity with the Finance Minister’s budget announcement on simplification and rationalisation of the compounding procedure, the Central Board of Direct Taxes (CBDT) issued revised guidelines for compounding of offences under the Income-tax Act, 1961.

Supersede All Existing Guidelines

CBDT said that the revised guidelines supersede all existing guidelines on the subject and would apply to pending as well as new applications, from the date of its issue. The revised guidelines are an additional step towards simplification of procedures aimed at promoting ease of compliance.

Reduction of Complexities and Simplification of Procedures

The guidelines are expected to facilitate the stakeholders by reducing complexities arising out of existing multiple guidelines, simplifying the compounding procedure and lowering the compounding charges.

Key Changes in the Guidelines

The guidelines have been simplified inter-alia by eliminating the categorisation of offences, removing the limit on a number of occasions for filing applications, allowing fresh application upon curing of defects which was not permissible under earlier guidelines, allowing compounding of offences under section 275A and 276B of the Act, removing the existing time limit for applying viz 36 months from the date of filing of the complaint, etc.

Facilitating Companies and HUFs in Compounding Offences

To facilitate the compounding of offences by companies and HUFs, the requirement of the main accused applying has been dispensed with.

Compounding of Offences by Main Accused and Co-Accused

The offences of the main accused as well as any or all co-accused can be compounded on payment of relevant compounding charges by the main accused and/or any of the co-accused, under the revised guidelines.

Rationalisation of Compounding Charges

The compounding charges have also been rationalised by abolishing interest chargeable on delayed payment of compounding charges, reducing rates for various offences such as for TDS defaults, multiple rates of 2%, 3% and 5% have been reduced to a single rate of 1.5% per month and basis for calculation of compounding charges for non-filing of return has been simplified.

Other Simplification Measures

Other simplification measures include the removal of the charge of a separate compounding fee from the co-accused.