CBDT issues New Rules for Compounding Offences With Lower Penalties under IT Act

The Central Board of Direct Taxes (CBDT) released Revised Guidelines for Compounding of Offences under the Income-tax Act, 1961 (the ‘Act’) on October 17, 2024, in accordance with the Finance Minister’s budget announcement on the streamlining and rationalization of the compounding procedure.

The revised guidelines supersede all previous instructions on the subject and will apply to both pending and new applications beginning with the date of release. The rules are designed to benefit stakeholders by minimizing the complications that arise from current various norms, simplifying the compounding method, and lowering compounding rates.

The guidelines have been simplified, among other things, by eliminating the categorization of offences, removing the limit on the number of occasions for filing applications, allowing fresh applications upon curing of defects, which was not permitted under previous guidelines, allowing compounding of offences under sections 275A and 276B of the Act, removing the existing time limit for filing applications, namely 36 months from the date of filing of a complaint, and so on.

To facilitate the compounding of offences by companies and HUFs, the requirement that the primary accused file the application has been removed. Under the revised guidelines, the main accused’s offences, as well as those of any or all co-accused, can be compounded upon payment of necessary compounding charges by the main accused and/or any of the co-accused.

Compounding charges have also been rationalized by eliminating interest on late payment of compounding charges, lowering rates for various offences such as TDS defaults, multiple rates of 2%, 3%, and 5% have been reduced to a single rate of 1.5% per month, and the basis for calculating compounding charges for non-filing of returns has been simplified. Other simplification improvements include removing the charge for a separate compounding fee from the co-accused.

The revised rules are an additional step toward simplifying procedures and encouraging ease of compliance.