Simplified Guidelines for Compounding of Offences under the Income-tax effective 17/10/24:
The Central Board of Direct Taxes (CBDT) issued revised guidelines for compounding of offences under the Income-tax Act, 1961, effective from October 17, 2024. These new guidelines supersede all previous versions and introduce significant simplifications to streamline the compounding process for taxpayers.
Introduction:
Effective from 17 October 2024, the CBDT issued significantly simplified guidelines for compounding offences under the Income-tax Act, 1961.
Scope & Applicability
1. The revised guidelines supersede all prior compounding guidelines and apply to both pending and new applications.
2. For pending applications whose compounding charges were already determined but not fully paid, the charges will be re-determined under the new rules.
3. However, if the compounding charge has already been paid in full, there is no refund of the excess.
Major Changes:
1. Elimination of offence categorisation:
The earlier practice of classifying offences into categories has been done away with.
2. No limit on number of application:
The new rules allow multiple compounding applications. The previous restriction on “number of occasions” is removed.
3. Re-filing after curing defects:
Applications earlier rejected for curable defects (i.e. not on merits) can now be refiled without paying a fresh application fee (in many cases).
4. Inclusion of more offences (Sections 275A & 276B)
The new guidelines explicitly allow compounding of offences under section 275A (search/seizure related) and section 276B (failure to deposit TDS) of the Income-tax Act.
5. Removal of time limit on filing compounding application:
Previously, applications had to be filed within 36 months of filing the complaint or initiation of proceedings. That time limit is now eliminated.
6. Rationalization of compounding charges / interest / fees
The interest component on delayed payment of compounding charges is abolished.
For TDS default offences, the multiple rates (2%, 3%, 5%) have been replaced by a single rate of 1.5% per month (simplification) for compounding.
7. Flexibility in who can apply (for companies / HUFs / co-accused:
The requirement that the main accused must file the application is removed. Either the main accused or any co-accused can apply.
8. Handling of prior rejections:
Applications rejected earlier for limitation reasons or on technical grounds can now be refiled (defects cured) under the new guidelines.
A fresh application will be treated as a “subsequent application” and may attract higher compounding charges.
9. No cross-adjustment of application fee across offences:
The fee paid for one offence cannot be adjusted against compounding of a different offence.
10. “Habitual offenders” may be rejected:
Tuhe competent authority has the discretion to reject applications in exceptional cases (e.g. habitual offenders).
Important Procedural Points:
1. The guidelines require the compounding application in a prescribed Annexure-1 format, via an affidavit on ₹100 stamp paper.
2. All outstanding tax, interest, penalty and related sums must be paid prior to filing the compounding application.
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