CBDT permits tax offence settlement through compounding under revised rules
New Delhi, Mar 18, 2025
Taxpayers can now settle offences by paying fine, announced the Central Board of Direct Taxes. But, this applies only if the taxpayer has no links to anti-national or terrorist activities
The Central Board of Direct Taxes (CBDT) has announced that all tax-related offences, including those investigated by the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI), can now be resolved by paying a fine, a process known as the ‘compounding of offences’.
However, this applies only if the taxpayer has no links to anti-national or terrorist activities. If any taxpayer is found involved in anti-national or terrorist activities, their case can only be settled with the approval of the CBDT chairman.
To guide taxpayers, the CBDT has also issued a frequently asked question (FAQ) list on the subject explaining the process of applying for compounding of offences.
What is the compounding of offences?
Compounding allows a person to avoid major legal consequences by paying a certain amount of money as penalty. The competent tax authorities can settle such offences either before or after legal proceedings begin.
Competent authority means Principal Chief Commissioner or Chief Commissioner or Principal Director-General or Director-General having jurisdiction over the assessee.
According to the CBDT FAQ, taxpayers can apply multiple times for compounding. The government has also removed the earlier 36-month limit for filing applications. Now, applications can be made even after prosecution has started.
The authority responsible for reviewing and approving such cases includes the Principal Chief Commissioner, Chief Commissioner, Principal Director-General, or Director-General of Income Tax.
This move aims to provide relief to taxpayers and reduce legal disputes.
Key changes in the new tax rules
The government has made it easier for taxpayers to settle tax-related offences without facing legal prosecution. Here are the major changes:
All offences can now be settled: Earlier, some tax offences could not be settled. Now, all offences under the Income Tax Act are eligible for compounding.
No limit on applications: Taxpayers can apply multiple times for compounding, even if their earlier request was rejected, as long as they fix the issues.
More time to apply: The earlier rule required applications to be filed within 36 months. This time limit has now been removed.
More offences covered: Cases related to tax evasion and non-payment of TDS (Sections 275A & 276B) can now also be settled.
No need to reapply for pending cases: If an application was already pending before October 17, 2024, it will be automatically considered under the new rules.
Fee adjustments allowed: If a taxpayer has already paid an application fee, it will be adjusted against the final settlement charges (but only for the offences mentioned in the application).
Option to withdraw and reapply: Taxpayers can withdraw a previous application and submit a new one. However, higher charges may apply.
Who can approve the applications?
The following authorities will review and approve compounding requests:
Principal Chief Commissioner (Pr CCIT)
Chief Commissioner (CCIT)
Principal Director General (Pr DGIT)
Director General (DGIT)
What this means for taxpayers?
These new rules make it easier for people facing tax-related cases, including those related to TDS defaults and tax evasion, to resolve their issues. The changes aim to reduce legal disputes, encourage voluntary compliance, and improve the ease of doing business.
[The Business Standard]
