Revised Guidelines for Compounding Offences Under the Income Tax Act, 1961
In line with the Finance Minister’s budget announcement on simplifying the compounding process, the Central Board of Direct Taxes (CBDT) has issued revised guidelines for compounding offences under the Income Tax Act, 1961, effective from October 17, 2024. These guidelines aim to make compliance easier for taxpayers by reducing complexities, simplifying procedures, and lowering compounding charges.
The revised guidelines apply to both pending and new applications. They supersede all previous guidelines, offering a unified and simplified approach to the compounding process. Stakeholders can benefit from these revisions as they remove ambiguities that arose from multiple overlapping guidelines and make the compounding procedure more streamlined.
Key Changes in the Revised Guidelines
The new compounding guidelines have introduced several important changes to make the process more accessible and efficient:
- Elimination of Offence Categorization: The revised guidelines have removed the categorization of offences, making it simpler for applicants to understand the process and apply without worrying about the specific classification of their offence.
- No Limit on Application Occasions: The limit on the number of occasions for filing compounding applications has been removed. Additionally, fresh applications can be filed if defects in earlier ones are cured—a provision that was not allowed under the previous guidelines.
- Compounding for Sections 275A and 276B: Compounding of offences is now permitted for violations under sections 275A and 276B of the Income Tax Act. The previous time limit for filing applications—36 months from the date of filing a complaint—has also been removed.
- Simplified Procedure for Companies and HUFs: Companies and Hindu Undivided Families (HUFs) will find it easier to compound offences, as the requirement for the main accused to file the application has been waived. Now, either the main accused or any of the co-accused can file and pay the relevant compounding charges.
Rationalized Compounding Charges
The compounding charges have been restructured to further reduce burdens on taxpayers:
- No Interest on Delayed Payments: Interest charges on delayed payment of compounding charges have been abolished.
- Reduction in Rates for TDS Defaults: Earlier multiple rates of 2%, 3%, and 5% for TDS defaults have been unified into a single rate of 1.5% per month. This is expected to ease financial pressures on taxpayers and provide a more predictable compounding structure.
- Simplified Basis for Non-Filing Charges: The method for calculating charges for the non-filing of returns has been simplified, and separate compounding fees for co-accused individuals have been removed.
Promoting Ease of Compliance
These revised guidelines represent a significant step toward simplifying the Income Tax Act’s compounding procedures. They are expected to promote ease of compliance, particularly for small businesses and individual taxpayers, by removing unnecessary hurdles and ensuring the compounding process is more transparent and efficient.
The complete revised guidelines for compounding offences, dated October 17, 2024, are available on the official Income Tax India website.
For more detailed information, you can also refer to the Press Release by PIB.
These changes are aimed at making the compounding process easier and more equitable for everyone involved. Taxpayers are encouraged to take note of these updates and consult their tax professionals to ensure compliance with the revised procedures.