CBDT has issued Circular 4/2025 dated March 17, 2025, to clarify frequently asked questions (FAQs) regarding the revised guidelines for the compounding of offences under the Income-Tax Act, 1961. These revised guidelines, issued on October 17, 2024, superseded all previous guidelines. They are applicable to both pending and new applications. The FAQs broadly covers the following aspects:
I. Understanding Compounding of Offences
Compounding of offence is a mechanism to avoid major legal consequences. The defaulter is given an opportunity to pay a sum of money.
1. What is Compounding? Compounding provides a mechanism where a defaulter can avoid prosecution by paying a specified sum. The competent authority can compound specified offences either before or after the initiation of legal proceedings.
2. Admission of Guilt: Compounding is not to be construed as an admission of the offence by the applicant. It is merely a resolution mechanism.
3. Non-Compoundable Offences: As per revised guidelines all offences under Income Tax are compoundable.
II. Jurisdiction and Competent Authority
The Pr. CCIT/ CCIT/ Pr. DGIT/ DGIT are the Competent Authority for compounding of offences.
1. Filing the Application: The compounding application is to be filed with the jurisdictional Pr. CCIT/ CCIT/ Pr. DGIT/ DGIT.
2. Multiple Jurisdictions (TDS Offences): If jurisdiction lies with multiple authorities for TDS-related offences, the application is filed with any of them. If the applicant files applications in more than one jurisdictional charge, then Competent Authority will be the one with the highest quantum of TDS default.
3. Multiple TANs: For applicants with multiple TANs under different jurisdictions, the authority with the highest quantum of TDS default will be competent.
III. Application Process and Fees
A prescribed format and fee structure are provided for application of compounding.
1. Format and Fees: The application must follow the format in Annexure-1 of the revised guidelines. It should be an affidavit on a Rs. 100 stamp paper, including applicable fees as per Para 4.2.1. One application may include multiple offences across different sections and years/quarters.
2. Time Limit: There is no time limit for filing a compounding application. It can be filed at any time after the offence is committed.
3. Application fees for Pending Applications: For applications which are pending as on 17.10.2024, no application fee is payable.
4. Adjustability of Fees: The compounding application fee is adjustable against the compounding charges for the specific offences in that application. Cross-application adjustments are not permitted. Fees are non-refundable if the application is rejected.
5. Previously Rejected Applications: Applications rejected under previous guidelines due to curable defects can be re-filed as a single consolidated application. Rejection on merits, with those particulars (i.e. offence and relevant financial year), bars re-application. A ‘consolidated compounding application’ fee is applicable.
6. Applicability to Pending Applications: Revised guidelines apply to pending applications. No fresh application or fee is needed for applications pending as of October 17, 2024.
7. Withdrawal of earlier applications: A new single application or consolidated application can be filed by the applicant, after withdrawal of earlier application(s).
8. Compounding for All Offences: Applicants are not obliged to apply for compounding of all offences simultaneously.
9. Number of applications: There is no limit on the number of compounding applications that may be filed by a person.
10. Re-Application After Conviction-Based Rejection: If an application was rejected solely due to a prior conviction, without examination of merits, re-application is permitted under the revised guidelines.
11. Defective Applications: Defects in an application can be rectified within one month of intimation. Failure to cure defects results in the application being returned and deemed rejected. A subsequent application is then treated as a new application for compounding charge purposes.
12. Carried Forward Applications: The applications pending as on 17.10.2024 are governed by new guidelines.
13. Applications Rejected Due to Time Limits: Applicants whose applications were rejected under previous guidelines due to time limitations (12/24/36 months) can file fresh applications. These will be treated as subsequent applications for calculating compounding charges.
IV. Terms for Compounding
1. Withdrawal of Appeals: Withdrawal of appeals related to the compounded offence is not mandatory before filing. However, an undertaking to withdraw such appeals (including Writ petitions) is required.
2. Writ Petitions for Rejected Applications: Applicants with pending Writ Petitions challenging rejections based on previous time limits can re-apply after undertaking to withdraw the Writ Petition.
V. Approval of Higher Authority
1. Conviction of two years or more: Application can be filed, even if applicant has been convicted with imprisonment of two years or more.
2. Cases Involving Other Agencies (ED/CBI): Compounding is possible if the applicant is not involved in anti-national or terrorist activities. Approval from the Chairman, CBDT, is needed if such involvement is found.
3. Cases having involvement of multiple offences: The compounding application will be processed based on the offence for which the application has been filed.
VI. Compounding Charges
1. Calculation for Rejected and Re-filed Applications: Applications rejected under earlier guidelines are deemed the first application. A fresh consolidated application is considered the second, and charges are calculated as per Para 10 of the revised guidelines.
2. Calculation for Pending Applications: Charges for pending applications are re-determined as per Para 10. All pending applications are treated as the first application, and charges are re-computed as per Annexure-4.
3. Credit for Previous Payments: Credit for amounts already paid for a specific offence and year is allowed during re-computation. Excess payments are neither refundable nor adjustable.
4. Adjustment of Partial Payments: Partial payments for withdrawn applications can only be adjusted against the specific offence and year for which the payment was made in a new consolidated application.
5. Combining various types of Applications: A consolidated application may be filed for all applications which were rejected and no fresh application is required to be filed for pending applications.
6. Determination of rates: The rate of compounding charge is based on sequence of application as well as offence applied for.
7. Suo-Moto Applications: Compounding applications may be filed suo-moto.
8. Post-Prosecution Applications: Applications can be filed after the launch of prosecution.
9. Computing Charges Without Tax Evasion Data: If the tax sought to be evaded or the tax on under-reported income is not determined, the minimum compounding charge for Section 276CC (as per Annexure-4) applies.
10. Inclusion of Expenses: Compounding charges do not include Prosecution Establishment Expenses and Litigation Expenses in the revised guidelines.
11. Payment Path: A specific payment path is available on the e-filing website: Login on e-Filing portal >> e-Pay Tax >> New Payment >> Income Tax >> Minor Head >> Other Receipts (500) >> compounding charges. Use PAN or TAN as appropriate.
12. Payment through PAN: Compounding charge is to be made under TAN of the deductor.
VII. Extension of Time for Payment
1. Extension for charges payment: Extension is allowed up to a maximum period of 24 months.
2. Extension Beyond 24 Months: Extensions beyond 24 months are not allowed.
3. Pending Applications and Payment Extensions: For applications pending as of October 17, 2024, where charges were not fully paid within the time allowed under previous guidelines, the 24-month period starts from the end of October 2024. Extension requires approval as per Para 9.4.
4. Interest/Additional Charges on Extensions: No interest or additional charges apply to extensions allowed under Para 9.4.
VIII. Co-accused, Abettors, and Offences by Companies/HUFs
1. Filing by Co-accused: Co-accused can file compounding applications separately or jointly.
2. Previously Rejected Co-accused Applications: If a co-accused’s application was rejected because the main accused had not applied, re-application is allowed (unless rejected on merit).
3. Previously Rejected Main Accused Applications: If the main accused’s application was rejected because the co-accused had not applied or given an undertaking, re-application is permitted (unless rejected on merit).
4. Pending Applications by Co-accused/Accused: No fresh application is required for pending applications filed by co-accused or accused under previous guidelines.
5. Compounding Fees for Co-accused: No separate compounding fee is payable for co-accused.
6. Other Persons: Person other than main accused or co-accused cannot file compounding application.
7. Unidentified Co-Accused: If co-accused have not been identified under Section 278B, either main accused or person who can substantiate can file application.
8. Identification Requirement: In such cases there will be no requirement to identify other co-accused.
9. Appeal Withdrawal Undertaking by Co-Accused: Co-accused cannot give undertaking for appeal withdrawal, on behalf of main accused.
10. Compounding Order Naming: The compounding order under Section 279(2) is issued in the name(s) of the applicant(s).
11. Co-Accused Filing Where Main Accused’s Liability Ceases: Co-accused can file even if the main accused company’s liability ceases under the Insolvency Bankruptcy Code.
12. Applicability of Para 4.3 During NCLT/CIRP/Liquidation: The conditions in Para 4.3 (payment of taxes, interest, etc.) apply in various scenarios under the Insolvency Bankruptcy Code (IBC).
CBDT issues Circular 4/2025 dated 17/03/2025 regarding FAQs on Revised Guidelines (dated 17/10/2024) on Compounding of Offences under Income-Tax Act, 1961
Revised Guidelines on Compounding of Offences under Income-Tax Act, 1961 dated 17/10/2024
Disclaimer: This blog post is for informational purposes only and should not be construed as legal or financial advice. Please refer to the official CBDT Circular 4/2025 and the Revised Guidelines on Compounding of Offences under the Income-Tax Act, 1961, for accurate and complete details. Consult with a qualified professional for specific guidance.