Overview
This lecture covers the major amendments regarding the compounding of offences under the Income Tax Act relevant for CA/CMA Final exams (Sep 25, Dec 25, Jan 26), focusing on new guidelines, procedures, fees, authorities, and key exam questions.
Compounding of Offence: Concepts & Definitions
- Compounding of offence allows defaulters to pay a monetary amount to avoid prosecution or jail time under income tax legal provisions.
- All offences under the Income Tax Act are compoundable as per revised guidelines issued on 17th October 2024.
- Compounding can be applied both before and after prosecution has started.
Applicability & Revised Guidelines
- Revised compounding guidelines apply to all applications pending as of 17th Oct 2024 and all new applications filed after this date.
- No need to file a fresh application or pay new fees for applications pending as of the guideline issue date.
- Application previously rejected on merits cannot be reapplied; if rejected for curable defects, it can be reapplied.
Filing Compounding Applications
- Applications made to senior tax authorities (PCCIT, DGIT, CCIT).
- Two types: Single Application (one year) and Consolidated Application (multiple years).
- No limit on number of compounding applications, but subsequent applications have higher fees.
Fees & Adjustments
- Single application fee: ₹25,000; Consolidated application fee: ₹50,000 (non-refundable but adjustable against charges in the same application).
- Fees are not transferable between applications or refundable if rejected.
Conditions & Requirements
- All outstanding tax, interest, penalties, and dues related to the offence must be paid before filing compounding application.
- Applicant must undertake to withdraw any related appeal if compounding is accepted (not required before application is filed).
Compounding Offences & Authorities
- Most cases handled by specified senior officers; in serious cases (e.g., imprisonment ≥2 years, anti-national activity), only Chairman CBDT can approve.
- TDS/TCS related offences can be compounded and consolidated per quarter.
Compounding Procedure & Timelines
- Authority must accept or reject application within 2 months of receipt.
- Compounding charges must be paid within 1 month of intimation (extendable up to 24 months with higher approvals).
- No extension beyond 24 months; after this, prosecution will be initiated.
- Compounding order issued within 1 month from payment of charges.
Special Provisions & FAQs
- Compounding does not amount to admission of guilt; merely resolves the offence.
- Compounding fees for repeated offences: first time = normal rate; subsequent = 1.2x, then 1.4x, then 1.6x, etc.
- Applications filed after 12 months from prosecution attract 50% higher charges.
- Co-accused/co-applicants can file jointly or separately; no separate fee for each.
- Only main accused can undertake to withdraw appeal; co-accused cannot.
Key Terms & Definitions
- Compounding of Offence — Paying a fee to avoid prosecution for a tax offence.
- Pending Application — Application filed before 17th Oct 2024 and not yet disposed.
- Consolidated Application — Single application for multiple years/offences.
- Curable Defect — Correctable error in application (e.g., missing documents).
- PCCIT/DGIT/CCIT — Senior tax officials with authority to accept compounding applications.
Action Items / Next Steps
- Review the revised compounding guidelines (issued 17th October 2024).
- Ensure you know key application procedures, fees, authorities, and timelines.
- Practice writing answers for exam questions on compounding of offence.
- Complete any homework or reading from your chart book or class notes as advised.