Income Tax Department relaxes compounding offence rules

The Income-tax Act of 1961’s prosecution provisions include a number of offences, and the Central Board of Direct Taxes (CBDT) has updated its Guidelines for Compounding of Offenses under the Act to reflect these changes.

On Saturday, the income tax department announced that it had loosened a number of rules governing the compounding of offences under the I-T Act and permitted compounding in situations where the applicant has already received a term of up to two years in prison.

The Income-tax Act of 1961’s prosecution provisions include a number of offences, and the Central Board of Direct Taxes (CBDT) has updated its Guidelines for Compounding of Offenses under the Act to reflect these changes.

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“The scope of eligibility for compounding of cases has been relaxed whereby case of an applicant who has been convicted with imprisonment for less than 2 years being previously non-compoundable, has now been made compoundable. The discretion available with the competent authority has also been suitably restricted,” the I-T Department said in a statement.

Additionally, the offence covered by Section 276 of the I-T Act is now compoundable.

Prosecution proceedings may be started under Section 276 if the taxpayer fraudulently removes, conceals, transfers, or delivers any property or any interest therein to any person with the intent to prevent the property or interest from being attached for the recovery of tax.

Compounding enables the offender to admit guilt and pay certain fines in order to avoid prosecution.

The time limit for accepting compounding applications has been loosened from the previous limit of 24 months to 36 months from the date of filing the complaint, according the updated instructions dated September 16.

Additionally, specific maximum limitations for the compounding fee covering violations of a number of Act provisions have been adopted.

Additional compounding fees in the form of penal interest that were previously 2% per month for the first three months and 3% per month after that have been lowered to 1% and 2%, respectively.