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Arnold Thomas

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Published on: Sep 15, 2026

Compounding of Offences under GST

In India, Section 138 of the Central Goods and Service Tax Act, 2017 specifies the provisions regarding the compounding of offences under GST, while Rule 162 of the Central Goods and Service Tax Rules, 2017 describes the procedure to be followed for such compounding of offences.

The term compounding is generally understood as the payment of a monetary penalty instead of undergoing prosecution for an offence. Essentially, it is an agreement between the offender and the department to avoid legal proceedings.

Section 138 of the CGST Act, 2017

Section 138 provides for the compounding of offences under GST, summarised as follows:

  • The Commissioner has the authority to compound any offence under the Act.
  • Offences can be compounded either before or after the prosecution is initiated.
  • Offences can only be compounded upon payment of the compounding amount.
  • Compounding is not permitted in cases such as:
    • Repeat offenders where the previous offence involved supplies exceeding INR 1 Crore under any GST law.
    • Repeat offenders of cognizable offences as specified in sub-clause (a) to (f) of Section 132 (1).
    • Individuals convicted for offences under the CGST Act by a court of law.
    • Individuals alleged to have committed an offence under both the CGST Act and any other concurrent law.
    • Individuals accused under sub-clause (g), (j), or (k) of Section 132 (1).
    • Other prescribed categories of individuals or offences.

The compounding amount is structured as follows:

Minimum amount payable under compounding of offence:

    • 50% of the tax involved; or
    • INR 10,000, whichever is higher.

Maximum amount payable under compounding of offence:

    • 150% of the tax involved; or
    • INR 30,000, whichever is higher.

Procedure for Compounding of Offence

Rule 162 lays down the procedure for the compounding of offences:

  • An applicant can apply for compounding either before or after the prosecution process begins.
  • The application must be submitted in FORM GST CPD-01 to the Commissioner.
  • The Commissioner will request a report from the concerned officer regarding the particulars in the application or other relevant information.
  • If satisfied with the disclosure, the Commissioner may issue an order in FORM GST CPD-02 approving the application within 90 days.
  • If dissatisfied, the Commissioner may reject the application but must give the applicant an opportunity to be heard.
  • The compounding amount specified by the Commissioner must be paid within 30 days.
  • Failure to pay within the time frame will void the Commissioner's order in FORM GST CPD-02.

For more information on filing specific GST returns, you can explore GSTR-1A, GSTR-1, and GSTR-3B. To understand the annual requirements, refer to GSTR-9 Annual Return. Those interested in GST filing services can visit Online GST Filing for more details.

Additionally, you can explore options for Nil Return Filing and learn about associated Charges and Fees. For detailed filing guidance, check our CA-Assisted GST Filing service.

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Frequently Asked Questions

Common questions about Compounding of Offences under GST: Process & Regulations.

Compounding of offences under GST refers to the process of paying a monetary compensation or fine instead of facing prosecution for an offence committed under the GST Act. It is a compromise between the offender and the department to avoid legal proceedings.
Section 138 of the CGST Act, 2017 empowers the Commissioner to compound any offence under the Act, either before or after the institution of prosecution.
No, compounding is not available in certain cases, such as for second-time offenders with offences involving supplies of value more than INR 1 Crore, for cognizable offences specified in section 132(1), or for persons convicted by a court under the CGST Act.
The minimum amount payable for compounding an offence is the higher of 50% of the tax involved or INR 10,000. The maximum amount payable is the higher of 150% of the tax involved or INR 30,000.
An applicant can make an application for compounding of an offence in FORM GST CPD-01 to the Commissioner, either before or after the institution of prosecution.
The Commissioner shall call for a report from the concerned officer and, if satisfied with the full and true disclosure, may issue an order in FORM GST CPD-02 allowing the application within 90 days. If not satisfied, the Commissioner may reject the application after giving an opportunity of being heard to the applicant.
The applicant is required to pay the compounding amount as mentioned in the Commissioner's order within a period of 30 days.
If the applicant fails to pay the compounding amount within the time limit of 30 days, the order passed by the Commissioner in FORM GST CPD-02 shall be vitiated and become void.
No, compounding of offences is not possible for a second-time offender wherein the earlier offence had been committed under any other GST law in respect of supplies of value more than INR 1 Crore.
Compounding is not available for any person who has been accused of committing an offence under the CGST Act which is also an offence under any other law for the time being in force.