Circular No. 04/2025 dated March 17, 2025, has been issued by the Central Board of Direct Taxes (CBDT) furnishing Frequently Asked Questions (FAQs) on the revised guidelines for the Compounding of Offences under the Income Tax Act, 1961.
Effective from October 17, 2024, these revised guidelines, have the motive to ease the compounding process, making it more accessible and efficient for taxpayers.
Revised Guidelines Highlights
- All Offences Now Eligible for Compounding: The revised guidelines unlike earlier guidelines, where certain offences were non-compoundable, allow compounding of all offences under the Income Tax Act.
- Applications Can Be Filed Without Limit: Now taxpayers can submit multiple compounding applications, even after a previous rejection, given that the defects are cured.
- Extended Period for Application Submissions: Elimination of the earlier time limit of 36 months to file a compounding application.
- Expansion to Cover Additional Sections: Offences under Sections 275A and 276B (related to tax evasion and TDS defaults) are now qualified for compounding.
- No New Application Needed for Pending Cases: Pending applications before October 17, 2024, will be considered automatically under the amended guidelines without necessitating a fresh submission.
- Revisions in Compounding Fee Structure: Application fees are now adjustable against compounding charges though merely for the particular offences cited in the application.
- Withdrawal and Reapplication Now Permitted: Previous applications can be withdrawn by the applicants and submit a new one, but there may be a higher compounding charge.
Understanding Compounding of Offences
Compounding is a legal instrument where an offender can bypass prosecution by paying a stipulated fee. This process authorizes taxpayers to correct defaults without facing criminal proceedings.
Read Also: SC: Late Income Tax Return Filing Doesn’t Exempt Taxpayers from Prosecution U/S 276CC
Who Is Eligible to Apply?
The Principal Chief Commissioner (Pr. CCIT), Chief Commissioner (CCIT), Principal Director General (Pr. DGIT), or Director General (DGIT) will act as the competent authority to process compounding applications.
Impact on Taxpayers
Taxpayers facing prosecution for TDS defaults, tax evasion, or non-compliance can now strive for relief under these new rules with the removal of time limits, expanded eligibility, and simplified processes. Reduction in litigation, enhanced voluntary compliance, and improved ease of doing business can be anticipated under the amendment.
