Facilitating Ease of Doing Business and decriminalization of offenses, the CBDT has taken steps in this direction by issuing revised Guidelines for Compounding of Offenses under the Income-tax Act, 1961 (the ‘Act’) dated 16.09.2022 with reference to various offenses covered under the Act’s prosecution provisions.  

Among the major changes made for the benefit of taxpayers is the addition of compoundability to offenses punishable under Section 276 of the Act. Furthermore, the scope of eligibility for compounding cases has been broadened, with the case of an applicant convicted with imprisonment for less than two years, which was previously non-compoundable, now becoming compoundable. The competent authority’s discretion has also been appropriately limited. 

The time limit for accepting compounding applications has been extended from 24 months to 36 months from the date of complaint filing. The complexities of the procedures have also been reduced/simplified. Specific upper limits for the compounding fee covering defaults under several Act provisions have been established. Additional compounding charges in the form of penal interest of 2% per month for the first three months and 3% per month after that have been reduced to 1% and 2%, respectively.