Tax Insights

from India Tax & Regulatory Services

CBDT issues revised guidelines for

Compounding of Offences under
Direct Tax Laws, 2019

June 19, 2019

In brief
The Central Board of Direct Taxes (CBDT) has issued 1 guidelines for compounding of offences under
the Direct Tax Laws, 2019 in supersession of its previous guidelines2 dated 23 December 2014. The
new guidelines shall come into effect from 17 June 2019 and shall apply to all applications for
compounding received on or after the aforesaid date.

In detail
The key changes in the revised guidelines have been summarised below.
Guidelines Change(s) introduced

Applicability to prosecution instituted under the  It is clarified that prosecution complaints

Indian Penal Code (IPC) under the IPC may be withdrawn by the
Competent Authority (CA) in case of the
following:
- the complaint filed under the provisions of
both Income-tax Act, 1961 (Act) and the
IPC are based on the same facts; and
- the complaint under the Act is
compounded.
Classification of offences  Offences punishable under sections 276CC
(failure to file return of income) and
276CCC (failure to file return of income in
search cases) of the Act have been moved
from Category “B” to Category “A” offence.
 Offences punishable under section 275A
[contravention of order made under section
132(3)], section 275B [failure to comply with
the provisions of section 132(1)(iib)] and
section 276 (removal, concealment,

1 F. No. 285/08/2014-IT(Inv.V)/147
2
F. No. 285/35/2013 IT(Inv.V)/108

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Tax Insights
Guidelines
Offences not to be compounded
Form and time limit for filing of
compounding application
Meaning of the term “occasion”
CA to compound an offence
Compounding procedures
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Change(s) introduced
transfer or delivery of property to thwart tax recovery) of the Act have
been removed from Category “B”, and can no longer be compounded.
 Any offence for which compounding application has already been
rejected except where benefit of rectification is available.
 In case it is proved that a person has enabled others in tax evasion.
 Offence related to undisclosed foreign bank accounts/ assets.
 Offence under Black Money (Undisclosed Foreign Income and Assets)
Act, 2015.
 Offence under Benami Transaction (Prohibition) Act, 1988.
 The compounding application of offences to be filed in the prescribed
format (Annexure 1) in the form of an affidavit on a stamp paper of
value INR 100.
 No compounding application can be filed after the end of 12 months
from the end of the month in which prosecution complaint, if any, has
been filed in a court of law.
 Time limit of filing the compounding application may be relaxed until
completion of 24 months from the end of the month in which the
complaint is filed. Such relaxation shall be granted for delays
attributable to reasons beyond the applicant’s control. However,
compounding charges would be 1.25 times the normal compounding
charges as applicable on the date of filing the original application.
It has been clarified that Category “A” offences cannot be compounded on
more than three occasions except on approval of the prescribed
Committee. In this context, it has been clarified that multiple applications
filed for one or more assessment years in one instance shall be treated as
one “occasion”.
 Jurisdiction over deductors who has committed an offence under
sections 276B/ 276BB of the Act for non-payment of tax withheld in
respect of both resident and non-resident deductees - The Pr. CCIT/
CCIT/ Pr. DGIT/ DGIT in whose jurisdiction the compounding
application has been filed shall be the CA. He/ she shall compound
the offence subject to approval of the Committee comprising of three
officers of the rank of CCIT, constituted by the Pr. CCIT of the region.
 Applicant having more than one Tax Deduction and Collection
Account Number (TAN) lying in the jurisdiction of two or more Pr.
CCIT/ CCIT/ Pr. DGIT/ DGIT – Pr. CCIT/ CCIT having jurisdiction
over the TAN of the region in which the Permanent Account Number
(PAN) jurisdiction of the applicant is falling.
The procedural timelines have been amended as below for processing the
compounding application:
 Disposal of application by CA by rejecting or intimating compounding
charges in the prescribed format (Annexure 3) – six months from end
of the month of application (excluding the time for payment of the
compounding charges).
 Compounding charges to be paid by applicant – within one month
from end of the month of receipt of intimation from CA (under
exceptional circumstances, Pr. CCIT/ CCIT/ Pr. DGIT/ DGIT may
extend this period to three months, and prior approval is required in
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Guidelines Change(s) introduced

writing from the Committee for extension beyond three months. No

approval beyond 12 months except in case of prior approval of
Member (inv.) CBDT on proposal of the concerned CA.
 Interest rate on compounding charges – 2% per month if paid beyond
one month from the end of the month in which it was intimated to
applicant and 3% per month if the period is extended beyond three
months.
 Passing of compounding order by CA – within one month from the
end of the month of payment of compounding charges
 Order of acceptance/ rejection of compounding application shall be
brought to the notice of the Court through prosecution counsel in all
cases where prosecution proceedings have been initiated.
 A compounding application rejected solely on account of late/ short
payment of compounding charges for bonafide mistakes or some
other technical grounds can be rectified at applicant’s written
application on payment of such shortfall with applicable interest
before rejection or time allowed by the CA, whichever is applicable.
Having said above, the guidelines expressly state that the above timelines
are administrative and indicative for work management and do not
prescribe a limitation period for the disposal of the compounding
applications.
Definition of “tax” For the purpose of computing the compounding fees, the word “tax”
means tax including surcharge and any cess by whatever name called, as
applicable.
Compounding fees  Suo-moto application is filed by the taxpayer for offences punishable
under sections 276B and/ or 276BB of the Act.
- A reduced compounding fee at the rate of 2% per month or part of a
month of the amount of tax in default as disclosed in the application.
- The said fees shall not exceed the tax withheld and interest under
section 201(1A) of the Act taken together, if the default is in respect of
the deposit of tax withheld being less than INR 1,00,000.
 Offence punishable under section 276C(1) of the Act.
- In cases involving tax sought to be evaded - 150% (where tax sought
to be evaded exceeds INR 25,00,000) and 125% (in any other case).
- In cases involving attempt to evade only the penalty - 100% of such
penalty sought to be evaded.
 Offences punishable under sections 276CC and 276CCC of the Act.
- Default in furnishing return of income within due date under section
139(1) of the Act –
o Tax on returned income (reduced by tax withheld and advance
tax) exceeds INR 25,00,000 – INR 4,000 per day.
o Any other case – INR 2,000 per day. However, in cases where the
difference between the aggregate of taxes paid/ payable on
returned income and the aggregate of self-assessment taxes
already paid is less than INR 1,00,000, the compounding fees
will be restricted to such difference subject to INR 10,000.

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Tax Insights
Guidelines
Computation of period of default
Clarification for offences punishable
under sections 277 and 278 of the Act
Changes in compounding application
format (Annexure 1) and suggested
34
Change(s) introduced
- Non-compliance of notice under sections 142(1)(i)/ 148 / 153A / 153C
of the Act –
o Tax on returned income (reduced by tax withheld and advance
tax) exceeds INR 25,00,000 – INR 4,000 per day from due date
of filing of return till date specified in notice under section 142(1)
of the Act and INR 5,000 from date specified in notice under
sections 142(1)/ 148/ 153A/ 153C of the Act till date of filing of
return or completion of assessment, whichever is earlier.
o Any other case – INR 2,000 per day from due date of filing of
return till date specified in notice under sections 142(1)/ 148/
153A/ 153C of the Act, and INR 3,000 from date specified in
notice under sections 142(1)/ 148 of the Act till date of filing of
return or completion of assessment, whichever is earlier.
- Return of income is filed late but self-assessment tax is not paid –
Constitutes two separate offences under sections 276CC and 276C(2)
of the Act, and action under section 276C(2) to be undertaken only
upon issue of demand notice under sections 143(1)/ 143(3) of the Act.
 In case where no return of income is filed – tax on “returned income”
to be replaced by tax on “assessed income”.
 If return of income processed under section 143(1) is higher than
returned income – tax on “returned income” to be replaced by tax on
income determined under section 143(1).
 Compounding fees for offences punishable under section 276CCC of
the Act shall be calculated in the same manner as for offences under
section 276CC of the Act as prescribed in the compounding guidelines
dated 16 May 2008.
 Offences for which no compounding fees have been prescribed –
minimum INR 1,00,000 for each of the offences.
 “Period of default” used for calculating the compounding fees under
section 276C(2) of the Act shall be as follows:
- Where tax, interest or penalty as per notice of demand is not paid –
from the date immediately following the due date of payment till the
date of actual payment.
- Where self-assessment tax was not paid – from the due date of filing
of return of income to the date of actual payment.
 For computing period of default, any period of stay of demand
granted by any Income Tax Authority, the Appellate Tribunal or Court
shall be excluded.
 The offense of the co-accused cannot be compounded separately
unless the main accused i.e., company/ HUF comes for compounding
in case of prosecution proceedings under sections 278B or 278C of the
Act.
 If one or more co-accused has not filed the compounding application
or is not agreeable to the payment of compounding charges, then the
main accused undertakes to pay the compounding charges on his/ her
own and such co-accused’s behalf.
The said Annexures have been amended to incorporate changes viz.
earlier rejection, undisclosed foreign bank account/ assets, black money,
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Tax Insights

Guidelines Change(s) introduced

check list for compounding (Annexure benami transactions, offences under sections 275A, 275B and/or 276 of
2) the Act, verification of records, etc. aligned to the requirement of the
revised guidelines.

The takeaways
 The CBDT, by revising the
compounding guidelines, has
brought in a more stringent
framework for compounding
offences punishable under the
Direct Tax Laws.
 The emphasis in the revised
guidelines is on preventing
serious offences under the
Black Money Act and Benami
Transaction (Prohibition) Act
from being compounded.
Certain other offences such as
contravention of search and
seizure orders, denial of access
to electronic records to the
authorities, property related
offences to thwart tax
recovery, etc., are no longer
compoundable.
 The CBDT has also tried to
ensure that the taxpayers do
not undergo hardship in
genuine cases. For instance,
compounding can be allowed
up to three occasions (earlier,
only one opportunity was
available) in case of non-filing
of return of income. Also, the
Finance Minister has the
powers to relax the restrictions
for compounding of an offence
in deserving cases, based on
the recommendation of the
CBDT.
Let’s talk
For a deeper discussion of how
this issue might affect your
business, please contact your
local PwC advisor

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Tax Insights

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