Due Date Extension for Compounding of Offences - Income Tax

The income tax department has relaxed the timeline for applying for

compounding of offences made by taxpayers including offences such as failure to furnish income-tax returns, under-reporting of income, and failure to deposit TDS; as a one-time measure. According to the latest circular issued by the CBDT, a one-time facility has been launched by which such offences can be settled by taxpayers until December 31st, 2019. Compounding of offences implies that a taxpayer or assessee who has defaulted or evaded taxes can agree to pay the tax liability due to the government along with the interest and penalties applicable. The income tax department, in such cases, shall not pursue a prosecution case against such offences in the court of law.

Revised Due Date

As per the latest circular (Circular No.01/2020) of Central Board of Direct Taxes, the due date for filing applications for compounding of offences is 31st January 2020. After considering the requests from the taxpayers through, the extension of due date has been announced. The exact text from the circular is provided below:

"Such application shall be filed before the Competent Authority i.e. the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned, on or before 31.01.2020." The circular can be accessed from the below link:

What is new in the latest guidelines?

1. a) As per the earlier guidelines, taxpayers were required to file an application for such compounding of offences with the income tax department within a timeline of 12 months from the date of the complaint being filed in the court of law. b) Now, as a one-time measure, this timeline has been extended until December 31

st 2019, even if the 12-month time period is already passed. 2. a) Earlier, beyond the 12-month time period, a compounding application was not allowed. It could be filed only in select cases, after 12 months but before 24 months from the end of the month in which the complaint was filed due to reasons beyond the applicant’s control and when approved by a competent authority like a Principal Chief Commissioner of Income Tax or the Chief Commissioner of Income Tax or the Principal Director General of Income Tax or the Director-General of Income Tax. b) Now, barring serious offences or cases which fall under General non-compoundable offences, taxpayers can file such an application for compounding on or before December 31st, 2019. 3. a) Earlier, in such select instances where the relaxation of the timeline was permitted, the compounding charges was prescribed at 1.25 times the normal compounding charges as applicable to the offence on the date of filing of the original compounding application. b) Now, these higher charges shall not apply to all instances that are eligible and avail of this one-time relaxation measure. Only the normal compounding procedure and compounding charges etc. as prescribed earlier shall apply.

Eligibility to avail one-time timeline relaxation

As per the latest guidelines, this facility is applicable in the following instances:

Instances where the compounding application was not filed within the prescribed 12-month timeline
Cases which were earlier withdrawn from court solely due to non-filing of application within the 12-month timeline
Cases where prosecution proceedings have been pending in court for more than 12 months
Instances where the compounding application was rejected solely on technical grounds

Non-eligibility of such relaxation of timeline

This one-time facility will not be applicable in cases of serious tax evasion, financial crime, terror financing, money laundering, possession of illegal foreign assets or ‘benami’ properties
For someone who has been convicted by a court in the past under Direct Tax Laws
Under all the General non-compoundable offences as detailed in an earlier circular issued by the Income Tax Department on 14th June 2019.

Please click here for all such general non-compoundable offences which are non-eligible

Condition for filing a compounding application

Eligible taxpayers and assesses can file a compounding of offences application before a Competent Authority like the Principal Chief Commissioner of Income Tax or the Chief Commissioner of Income Tax or the Principal Director General of Income Tax or the Director-General of Income Tax, having jurisdiction over the case for compounding of the offences, on or before 31st December 2019
The application must be prepared in the prescribed format in the form of an affidavit
The Income-tax department has earlier also stated that compounding of offences was not a ‘matter of right’ and that such relief can only be extended in certain cases keeping in view factors like the conduct of the person, the nature and magnitude of the offence in the context of the facts and circumstances of each case
Compounding procedure, compounding charges etc. applicable norms remain the same as per the earlier notification issued on 14th June 2019

Please click here for a detailed article on the earlier notification issued PDF Link to earlier official circular dated 14th June 2019

Benefits of Relaxation of Timeline

In a bid to curb serious tax evasion, which has been a major source of loss of income for the country’s exchequer, the government has tightened the norms for serious tax offenders. It has also made cases of money-laundering or black money or ‘

Benami’ property transactions as ‘generally/normally’ non-compoundable. This implies that a person or entity which commits such a serious offence will not be able to apply for compounding and escape prosecution in the court simply by paying the tax demand and its associated interest and penalties. However, such stringent norms also created a lot of issues for many genuine cases of non-serious offences by taxpayers. It also created an unfriendly business environment, particularly for the small and medium enterprises in the country. As such, the government has been issuing guidelines from time to time to encourage compliance and ease the burden for genuine taxpayers. Under the latest circular, the income tax department observed that were some ‘unintended hardships’ in ‘deserving’ cases, and this one-time relaxation is a step towards extenuating such sufferings of the taxpayers. Furthermore, the circular also noted an increased number of cases pending for prosecution before the courts, which this measure has tried to lessen. The move is considered as reflective of the government’s intent to focus more on tax revenue collection through the compounding fee rather than to prosecute genuine taxpayers. It is also considered to be a healthier move for small and medium business owners in India. Please find the government notification below:

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Frequently Asked Questions

Common questions about Compounding Offences Due Date Extension for Income Tax.

The compounding of offences is a provision that allows taxpayers who have defaulted or evaded taxes to settle their cases by paying the tax liability, interest, and applicable penalties. In such cases, the income tax department does not pursue prosecution against the offender in the court of law.

The latest circular from the Central Board of Direct Taxes (CBDT) has extended the due date for filing applications for compounding of offences to January 31, 2020. It provides a one-time opportunity for taxpayers to settle their cases even if the initial 12-month timeline for filing the application has passed.

The relaxation applies to offences such as failure to furnish income-tax returns, under-reporting of income, and failure to deposit Tax Deducted at Source (TDS), among others. However, it excludes serious offences like tax evasion, financial crimes, money laundering, and possession of illegal foreign assets or 'benami' properties.

No, the one-time relaxation of the timeline for compounding of offences is not applicable to taxpayers who have been convicted by a court in the past under Direct Tax Laws.

The relaxation benefits taxpayers by providing them with an opportunity to settle their cases without prosecution, even if they missed the initial 12-month deadline. It reduces the burden on taxpayers, particularly small and medium enterprises, and encourages tax compliance.

Eligible taxpayers must file the compounding application in the prescribed format as an affidavit before the Competent Authority (Principal Chief Commissioner/Chief Commissioner/Principal Director General/Director General of Income Tax) having jurisdiction over the case, on or before January 31, 2020.

No, the compounding procedure, compounding charges, and other applicable norms remain the same as per the earlier notification issued on June 14, 2019. The relaxation only extends the timeline for filing the application.

No, the one-time relaxation of the timeline is not applicable in cases of serious tax evasion, financial crimes, terror financing, money laundering, possession of illegal foreign assets, or 'benami' properties, as specified in the circular.

The government has acknowledged that there were unintended hardships in deserving cases and an increased number of pending prosecution cases. This relaxation aims to reduce the burden on genuine taxpayers, encourage compliance, and focus on revenue collection through compounding fees.

No, the CBDT has clarified that compounding of offences is not a matter of right for taxpayers. The relief can only be extended in certain cases, considering factors like the conduct of the person, the nature and magnitude of the offence, and the specific facts and circumstances of each case.