On October 17, 2024, the Central Board of Direct Taxes (CBDT) introduced revised guidelines for the compounding of offences under the Income-tax Act, 1961. These changes align with the Finance Minister’s announcement on simplifying and rationalizing the compounding process, with the intent to reduce complexities and promote ease of compliance for taxpayers.
Key Highlights of the Revised Guidelines:
- Simplification of Procedures:
The revised guidelines aim to streamline the compounding procedure by eliminating the multiple guidelines that were previously in effect. This will make it easier for stakeholders to navigate the process. - No Categorization of Offences:
Under the new guidelines, the categorization of offences has been removed. This means that offences will no longer be classified based on severity or type, simplifying the decision-making process for compounding. - Removal of Limits on Filing Applications:
The previous cap on the number of times an individual could apply for compounding has been abolished. Additionally, applications can now be re-filed upon curing defects, which was not allowed under earlier rules. - Extension of Compounding to More Offences:
The revised guidelines allow for the compounding of offences under sections 275A and 276B of the Income-tax Act. This extension provides more opportunities for taxpayers to resolve non-compliance issues without litigation. - No Time Limit for Filing Applications:
Previously, there was a 36-month time limit for filing compounding applications from the date of filing a complaint. This time restriction has now been removed, providing more flexibility for taxpayers. - Changes for Companies and HUFs:
One significant change is the removal of the requirement for the main accused to file the application. Now, the main accused or any co-accused can apply for compounding, which is particularly beneficial for companies and Hindu Undivided Families (HUFs). - Rationalization of Compounding Charges:
The compounding charges have been rationalized in several ways:
- Interest on delayed payment of compounding charges has been abolished.
- The rates for various offences, including Tax Deducted at Source (TDS) defaults, have been reduced. Previously, there were multiple rates of 2%, 3%, and 5%, which have now been unified to a single rate of 1.5% per month.
- The method for calculating charges for non-filing of returns has been simplified.
- Separate compounding fees for co-accused have been eliminated.
Impact of the New Guidelines:
These changes reflect the government’s focus on simplifying tax administration and making it easier for businesses and individuals to comply with the law. By removing barriers such as time limits and reducing compounding charges, the CBDT is encouraging voluntary compliance and reducing litigation.
The revised guidelines are expected to be a relief for businesses and individuals alike, providing them with more flexibility and a less burdensome path to resolve tax-related offences. The elimination of categories and limits, along with the reduction in fees, will likely encourage more taxpayers to opt for compounding.
For further details, the revised guidelines are available on the Income Tax Department’s official website.
This move aligns with the broader objective of promoting ease of doing business in India by reducing procedural complexities and making the tax system more taxpayer-friendly.
These revisions mark another step towards simplifying tax procedures in India, helping to create a more transparent and efficient tax compliance environment for all stakeholders.
