CBDT Issues FAQs on Revised Guidelines for Compounding of Offences Under IT Act, 1961

Key Changes Aim to Simplify the Process and Enhance Compliance

The Central Board of Direct Taxes (CBDT) has issued Circular No. 04/2025 dated March 17, 2025, providing Frequently Asked Questions (FAQs) on the revised guidelines for the Compounding of Offences under the Income Tax Act, 1961. These revised guidelines, effective from October 17, 2024, aim to simplify the compounding process, making it more accessible and efficient for taxpayers.

Major Highlights of the Revised Guidelines

1. All Offences Now Compoundable: Unlike earlier guidelines, where certain offences were non-compoundable, the revised guidelines allow compounding of all offences under the Income Tax Act.
2. No Limit on Filing Applications: Taxpayers can now file multiple compounding applications, even after a previous rejection, provided the defects are cured.
3. Extended Time for Applications: The earlier time limit of 36 months for filing a compounding application has been removed.
4. Inclusion of More Sections: Offences under Section 275A and 276B (related to tax evasion and TDS defaults) are now eligible for compounding.
5. No Fresh Application Required for Pending Cases: Applications pending before October 17, 2024, will automatically be considered under the new guidelines without requiring a fresh submission.
6. Compounding Fee Adjustments: Application fees are now adjustable against compounding charges, but only for the specific offences mentioned in the application.
7. Withdrawal and Re-application Allowed: Applicants can withdraw previous applications and submit a new one, though higher compounding charges may apply.

What is Compounding of Offences?

Compounding is a legal mechanism where an offender can avoid prosecution by paying a prescribed fee. This process allows taxpayers to rectify defaults without facing criminal proceedings.

Who Can Apply?

The Principal Chief Commissioner (Pr. CCIT), Chief Commissioner (CCIT), Principal Director General (Pr. DGIT), or Director General (DGIT) will act as the competent authority to process compounding applications.

Implications for Taxpayers

With the removal of time limits, expanded eligibility, and simplified processes, taxpayers facing prosecution for TDS defaults, tax evasion, or non-compliance can now seek relief under these new rules. The changes are expected to reduce litigation, enhance voluntary compliance, and improve ease of doing business.

Official copy of the circular has been attached