Guidelines will reduce complexities arising out of existing multiple guidelines, simplify  the compounding procedure and lower the compounding charges

In conformity with the  Finance Minister’s budget announcement on simplification and rationalization of compounding procedure, CBDT has issued Revised Guidelines for Compounding of offences under the Income-tax Act, 1961(the 'Act') on 17.10.2024.

The revised guidelines supersede all existing guidelines on the subject and would apply to pending as well as new applications, from the date of its issue. The guidelines are expected to facilitate the stakeholders by reducing complexities arising out of existing multiple guidelines, simplifying the compounding procedure and lowering the compounding charges.

The guidelines have been simplified inter-alia by eliminating the categorization of offences, removing the limit on number of occasions for filing applications, allowing fresh application upon curing of defects which was not permissible under earlier guidelines, allowing compounding of offences under section 275A and 276B of the Act, removing the existing time limit for filing application viz 36 months from the date of filing of complaint, etc.

To facilitate compounding of offences by companies and HUFs, the requirement of main accused filing the application has been dispensed with. The offences of the main accused as well as any or all co- accused can be compounded on payment of relevant compounding charges by the main accused and/or any of the co-accused, under the revised guidelines.

The compounding charges have also been rationalized by abolishing interest chargeable on delayed payment of compounding charges, reducing rates for various offences such as for TDS defaults, multiple rates of 2%, 3% and 5% have been reduced to single rate of 1.5% per month and basis for calculation of compounding charges for non-filing of return has been simplified. Other simplification measures include removal of charge of separate compounding fee from co- accused.

The revised guidelines are an additional step towards simplification of procedures aimed at promoting ease of compliance.

Compounding of tax offences simplified: revised guidelines streamline procedures and lower compounding charges, including companies and HUFs. The CBDT issued revised guidelines for compounding of offences under the Income tax Act, which supersede earlier guidelines and apply to pending and new applications. Key changes eliminate offence categorisation, remove limits on application frequency, permit fresh applications after curing defects, extend compounding to additional penal offences, and remove the prior time limit for filing. For companies and HUFs the main accused need not file; compounding may be effected by payment from main or any co accused. Compounding charges are rationalised by abolishing interest on delayed payment, consolidating multiple rates into a single monthly rate for certain defaults, simplifying the calculation for non filing, and removing separate fees for co accused.