CBDT Releases Comprehensive FAQs on Guidelines for Compounding of Offences under Income Tax Act [Read Circular]
The revised guidelines have brought about significant changes including the elimination of rigid restrictions and simplification of procedures for taxpayers seeking to compound their offenses
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In a bid to bring greater clarity and uniformity to the mechanism employed for compounding of offences under the Income-Tax Act, 1961, the Central Board of Direct Taxes ( CBDT ) has issued a comprehensive set of Frequently Asked Questions ( FAQs ) through Circular No. 04/2025, dated March 17, 2025. The FAQs are based upon the revised compounding guidelines issued on October 17, 2024,...
In a bid to bring greater clarity and uniformity to the mechanism employed for compounding of offences under the Income-Tax Act, 1961, the Central Board of Direct Taxes ( CBDT ) has issued a comprehensive set of Frequently Asked Questions ( FAQs ) through Circular No. 04/2025, dated March 17, 2025.
The FAQs are based upon the revised compounding guidelines issued on October 17, 2024, which replaced all previous instructions and introduced more flexible, taxpayer-friendly provisions. The 13-page document serves as a detailed guide, offering insights into key aspects of the compounding process, jurisdictional authority, applicable fees, and procedural requirements, ensuring that tax professionals, businesses, and individuals can navigate the system with greater ease.
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Marking a departure from earlier policies, the new guidelines have eliminated rigid restrictions and simplified procedures for taxpayers seeking to compound their offences. These changes cater to tax professionals, companies, and individuals looking to resolve tax-related criminal liabilities through financial settlements.
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Key Changes in the Compounding Process
Compounding of Offences: Previously, not all offences under the Income Tax Act, 1961 were eligible for compounding. The new guidelines make all offences compoundable, providing broader relief to taxpayers. Additionally, compounding now does not constitute an admission of guilt.
Competent Authority & Jurisdiction: The circular specifies that applications must be submitted to the jurisdictional Principal Chief Commissioner (Pr. CCIT), Chief Commissioner (CCIT), Principal Director General of Income Tax (Pr. DGIT), or DGIT. In matters involving multiple jurisdictions for offences related to Tax Deducted at Source (TDS), the one with the higher quantum of default shall determine authority.
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Compounding Application & Fee: The earlier 36-month time limit for filing compounding applications has been removed. Applications must now be submitted using a prescribed format (Annexure-1) along with a ₹100 stamp paper affidavit. Concerned taxpayers may note that pending applications from previous guidelines will not attract fresh application fees.
Terms for Compounding: Applicants are not required to withdraw appeals related to offences sought to be compounded. However Applicants must withdraw writ petitions, if any before applying for compounding.
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Approval of Higher Authority: For cases involving convictions, offences tied to Enforcement Directorate (ED) or Central Bureau of Investigation (CBI) probes, or anti-national activities, compounding will require approval from the Chairman of CBDT.
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The FAQs also contain example-oriented clarifications along with illustrations on Compounding Charges, Extension of Time for Payment of Compounding Charges and Co-Accused & Corporate Offences (Companies & HUFs).
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The FAQs published by the CBDT aims to demystify the compounding process for tax professionals, corporate taxpayers, and legal experts dealing with tax-related offences.
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For a detailed breakdown of specific scenarios, procedural nuances, and compounding charges, the full FAQ document can be accessed by clicking the blue button below.
To Read the full text of the Circular CLICK HERE
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