CBDT has issued a new set of guidelines for compounding of offences under direct taxes. The earlier guidelines were issue in Dec 2014. These guidelines will become effective June 17, 2019. It is evident that the tax authorities will be now more strict in dealing with such offences.
What is Compounding of offences
Several provisions of income tax law provide for prosecution in the event of certain non-compliances. Compounding is the process where tax authorities agree not to prosecute the offender. For this purpose the offender has to apply to the authorities for compounding and pay compounding fee.
The guidelines clearly state that compounding is not matter of right. The authority will consider these guidelines, conduct of the person, nature and magnitude of offence, facts and circumstances of each case.
Classification of offences
The new guidelines classifies offences under three categories with respect to compounding. However the Finance Minister may relax restrictions in deserving cases.
No compounding permitted
- Convicted by a court of law
- Enabled tax evasion by generating bogus sales/purchase invoices, providing accommodation entries or assist in money laundering
- Involved in anti-national , terrorist activity
- Connected with a case under investigation by ED, CBI, Lokpal etc
- Not disclosing foreign bank account or foreign asset
- Involved in a benami transaction
Category A : Compounding generally permissible on 3 occasions
- Failure to deposit TDS /TCS with Govt
- Failure to file income tax return
- Accept or repay loan otherwise than by bank transfer or cheque
- False statement in respect of above offences
Category B : Compounding generally not permissible
- Wilful attempt to evade tax
- Wilful attempt to evade payment of tax
- Failure to produce accounts and documents
- Falsification of books and documents
- False statements in respect of above offences
Note : The list given above is not exhaustive.
Proactly can help you avoid risks of non-compliance. Watch this short video and sign up for a free 30 days trial at http://www.proactly.in