CBDT issues Revised Guidelines for the Compounding of Offences

In order to enhance ease of doing business and decriminalise offences, the Central Board of Direct Taxes (CBDT) has released amended instructions for the compounding of Income Tax Act, 1961 offences. Among other measures, it has loosened qualifying requirements for compounding cases.

In accordance with the government’s policy of facilitating Ease of Doing Business and decriminalisation of offences, the CBDT has taken steps in this direction and issued revised Guidelines for Compounding of offences under the Income-tax Act, 1961 on September 16, 2022, with reference to various offences covered under the prosecution provisions of the Act,” the CBDT Circular on compounding of offences stated.

It was emphasised that one of the significant modifications made for the benefit of taxpayers was to make Section 276 of the Act a compoundable offence. In addition, the eligibility requirements for compounding cases have been loosened, such that situations in which the applicant was sentenced to less than two years of jail are now eligible for compounding. The discretion of the responsible authority has likewise been appropriately constrained.

Specific maximum limitations have been imposed on the compounding cost for violations of several Act sections. Additional compounding fees in the manner of punitive interest have been cut from 2% per month up to three months to 1% and 2% per month after three months, respectively.

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