FAQs on revised guidelines for compounding of offences under I-Tax act

The Central Board of Direct Taxes (CBDT) has issued a circular containing frequently asked questions (FAQs) regarding the revised guidelines for Compounding of Offences under the Income-Tax Act, 1961, dated October 17, 2024.

These revised guidelines replace all previous versions and apply to both pending and new applications from the date of issuance. The updated guidelines have been simplified compared to the earlier framework. Key changes include the removal of offence categorisation, elimination of restrictions on the number of times an application can be filed, allowance for fresh applications upon rectification of defects, permission to compound offences under Sections 275A and 276B of the Act, and the removal of the previous 36-month time limit for filing applications from the date of complaint filing.

Following the issuance of the guidelines, queries were received from stakeholders seeking clarifications on various provisions. Based on these queries, the CBDT has issued Circular No. 04/2025, dated March 17, 2025, in the form of answers to frequently asked questions (FAQs).

FAQs on the revised guidelines for the Compounding of Offences under the Income Tax Act, 1961.

What is the compounding of offence? 

Compounding of an offence is a mechanism whereby the defaulter is reprieved of major legal consequences by affording him an opportunity to pay a certain sum of money to escape prosecution. The specified offences can be compounded by the competent authority either before or after the initiation of proceedings.

Are there any offence(s) under Income Tax Act which are not compoundable?

No, all offences under Income Tax Act have been made compoundable in revised guidelines dated October 17, 2024. 

Where can the compounding application be filed by the applicant?

The compounding application can be filed before the jurisdictional Pr. CCIT / CCIT / Pr. DGIT / DGIT, being the Competent Authority for compounding of offences. 

Whether any format and fees has been prescribed for an application for compounding?

The application for compounding must be filed in the format prescribed in Annexure-l to the revised guidelines. The application may include one or more offence(s) under different sections pertaining to one or multiple years/quarters. The application should be filed in the form of an affidavit on stamp paper of Rs 100, along with application fees as per Para 4.2.1 of the revised guidelines dated October 17, 2024.

Whether compounding application fee is adjustable against compounding charge payable? 

Yes, compounding fee is adjustable but only against compounding charges payable for the offence(s) sought to be compounded in the particular application. Cross application adjustment is not allowed. However, if a compounding application is rejected for any reasons, the application fees shall neither be refundable nor adjustable against any subsequent application.

Is there any limitation as to the number of times compounding applications can be filed by a person?

No, there is no limitation on the number of times a person can file a compounding application. However, the Competent Authority may reject an application filed by a person on the ground of him being a ‘habitual offender’.

Source: Business Standard