F. o. 285/08/2014-lT (lnv. V)I .::l-':' /
Circular No. 4/2025 was issued by the Central Board of Direct Taxes on 17 March 2025. Its subject is F. o. 285/08/2014-lT (lnv. V)I .::l-':' /.
Answers questions on the Board's revised guidelines for compounding of offences under the Income-tax Act dated 17 October 2024, which superseded all earlier guidelines on the subject and apply to pending applications as well as new ones from the date they were issued. The circular records what the revision did: it dropped the categorisation of offences, removed the limit on the number of occasions on which an application could be made, allowed a fresh application once a curable defect was cured, brought offences under sections 275A and 276B within compounding, and removed the outer limit of 36 months from the filing of the complaint. On the answers themselves — compounding lets a defaulter escape prosecution by paying a sum, before or after proceedings begin, and is not to be read as an admission of the offence; under the revised guidelines every offence under the Act is compoundable. For applications already pending when the guidelines came out, the charge is re-determined under paragraph 10: each pending application, for one year or several, is treated as a first compounding application and the charge is recomputed for every offence disclosed, on Annexure-4 to the guidelines. Amounts already paid are credited, but only against the same offence and the same year, and any excess is neither refunded nor adjusted. Where an application for a year was withdrawn, a part payment made for it can be set off in a new consolidated application only against that same offence and year, and a consolidated application made after the guidelines for years whose applications had been rejected for curable defects counts as a second application.
To create better awareness and understanding of the revised compounding guidelines among stakeholders, in question-and-answer form.
| Under the 1961 Act | Now |
|---|---|
| s.275A | s.473 |
F. o. 285/08/2014-lT (lnv. V)I .::l-':' /
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
******
Circular No. 04/2025
Dated: March 17,2025
Sub: Frequently Asked Questions (FAQs) on Guidelines for Compounding of Offences
under the Income-Tax Act, 1961 dated 17.10.2024
CBDT issued revised guidelines for Compounding of offences ('guidelines') under the
Income-tax Act, 1961(the 'Act') on 17.10.2024. The revised guidelines superseded all existing
guidelines on the subject and are applicable to pending as well as new applications, from the
date of their issuance.
2. The revised guidelines have been simplified from previous guidelines, inter-alia, by
eliminating categorization of offences, removing the limit on nunlber of occasions for filing
applications, allowing fresh application upon curing of defects, which was not permissible
wlder earlier guidelines, allowing compounding of offences under section 275A and 276B of
the Act, removing the existing time limit for filing application viz 36 months from the date of
filing of complaint, etc.
3. For better awareness and understanding among the stakeholders with respect to the
revised guidelines dated 17.10.2024, clarifications are provided by issue of a Circular in the
form of answers to the frequently asked questions (F AQs) as follows:
A. Compounding of offence
Q.l What is compounding of offence?
Ans: CompoWlding of an offence is a mechanism whereby the defaulter is reprieved of major
legal consequences by affording him an opportunity to pay certain sum of money to escape
prosecution. The specified offences can be compounded by the competent authority either
before or after the initiation of proceedings.
Q.2 Whether compoWlding of an offence constitute as an admission of an offence by the
appli cant?
Ans: 0, compounding is intended to resolve the offence(s) and it is not to be construed as an
admission of such offence(s) by the applicant. (Ref: panl 9.11 of the guidelines)
Q.3 Are there any offence(s) under Income Tax Act which are not compoundable?
Ans: No, all offence wlder Income Tax Act have been made compoWldable in revised
guidelines dated 17.10.2024.Q.26 How shall the compounding charges be calculated for applications pending before issuance of these guidelines?
Ans: The compounding charges fo r pending application are subject to re-determination as per para 10 of the revised guidelines. All pending applications, whether for single or multiple years/quarters, shall be treated as first compounding application and compounding charge shall be re-computed for each offence disclosed in the application as given in Annexure-4 of the guideline. (Ref: para 3.1 and 10 of the guidelines)
Q.27 Whether credit of payment shall be allowed whi le re-computing compounding charge for pending applications? If yes, whether the excess payment shall be refundable or adjustable?
Ans: Yes, credit of the amount already paid for particular offence pertaining to particular year shall be allowed fo r such particular offence and year only, during re-computation of compounding charge for pending application. However, any excess payment shall not be refundable or adjustable. (Ref: para 3.1 of the guidelines)
Q.28 If a new consolidated application includes a year for which application was fil ed earlier and then withdrawn, whether partial compounding charges paid for such year for which application is withdrawn can be adj usted against total compounding charges towards consolidated application?
Ans: No. Partial compounding charges paid for the year for which application is withdrawn can be adjusted in new consolidated application only towards the offence and particular year for which payment was made. (Ref: para 3.2 of the guidelines)
Q.29 An applicant has filed compounding applications under earlier guidelines, two of which were rejected on account of curable defects, two were compounded and three are pending as on issuance of this guideline. How should the applicant file a compounding application after issuance of these guidelines and how shall the new application be treated?
ADS: No action is pending for the applications which have been compounded. A consolidated application may be fil ed for all applications which were rejected (on account of curable defects) and no fresh application is required to be filed for pending applications. All pending applications, whether for single or multiple years/quarters, shall be treated as first compounding application and compounding charge shall be re-computed for each offence disclosed in the application as given in AllI1exure-4 of the guideline. The fresh consolidated application for rejected applications will be considered as second application. Accordingly, the application filed after issuance of these guidelines shall be treated as subsequent application (2nd application) and compounding charge shall be re-computed for each offence disclosed in the application, in terms of para 10 of the revised guidelines. (Ref: para 3.1, 3.2 and 10 of the guidelines)
Q.30 How the rate of compounding charges will be determined in subsequent appli cation(s)?
Ans: The rate of compounding charge is based on sequence of application as well as offence applied for. If a subsequent application includes an offence which has also been included in earlier application(s), it shall be liable for higher rate i.e. 1.2 times, 1.4 times, 1.6 times and so on as per para 10.4 of the guidelines; irrespective of the fact that the offence and year of the offence are same in subsequent application and earlier application was rejected or pending or even compounded.
However, if subsequent application includes offence(s) which were not included in any compounding application filed earlier (rejected or compounded or pending) and the offence has been applied for first time, the compounding charge for such offence(s) shall be computed at normal rate as given in the annexure-4. (Ref: para 10 ofthe guidelines)
l11ustration- An applicant has filed different applications on different dates to compound different offences which will be considered as below:
Scenario Cla rifications
Application Date Status Offence Seq uence of Offence included in Ra te
(FY) Application Earlier Applicatio n?
15/011202 1 Compounded 2768 NA NA ~A
(2012- 13)
17/10/2022 Compounded ?76C ( I) NA NA NA
(20 18- 19)
18/08/2023 Rejected 2768 NA NA NA
(20 13-14)
17/0912024 Pending 276D First NA Normal
(20 19-20) (No fresh rate
application
required)
01 / 1112024 (filed Sing le application 2768 Second Yes, in applications dated 1.2 times 0
under revised (for earlier (2013 -1 4) 15/01 /2021 and 18/0812023. normal rate
guidelines) (considered as 2"d time) •
18/12/2024 Consolidated 2768 Th ird Yes, in applications dated 1.4 times 0
(filed under revised application (2017-18) 15/01 12 1, 18/08/2023 & normal rate
guidelines) 0 11 1112024
()'d time) '
276C (I) Yes, in application dated 1.2 times 0
(20 19-20) 17110/2022 normal rate
(2"d time)
275A No, first time appl ied for Normal
(2023 -24) ( I" time) rate* It is noted that the applicant has opted for compounding for this offence for the third time in third application and accordingly compounding charges at 1.4 times of normal rate should apply. However, since both applications were filed under previous guidelines, all such applications will be cumulatively considered as 'first' application, in terms of Para 10.6 of the revised guidelines. Thus, offence under these applications will be considered as clubbed together for calculation of compounding charges.
# It is noted that the applicant has opted for compounding for this offence for the fourth time in fourth application and accordingly compounding charges at 1.6 times of normal rate should apply. However, since first two applications were filed under previous guidelines, both these applications will be cumulatively considered as 'first' application, in terms of Para 10.6 of the revised guidelines, 01 .11 .2024 application will be considered as 'second' and this application will be considered as 'third'. Thus, offence under first two applications will be considered as clubbed together for calculation of compounding charges.
Q.31 Whether compounding application may be filed suo-moto? If yes, how the compounding charge shall be determined?
Ans: Yes, compounding application may be filed suo-moto at any time, after the offence(s) is committed, irrespective of whether it comes to the notice of department or not. The compounding charge depends on sequence of application as well as offence applied for and is independent of whether application is filed suo-moto or in compliance to the notice of department. (Ref: para 4.1.3 and 10 of the guidelines)
Q.32 Whether compounding application may be filed after launch of the prosecution? If yes, how the compounding charge will be determined?
Ans: Yes. If application is filed within 12 months from end ofthe month in which prosecution complaint is filed, the compounding charge will be determined as per para 10.2 to 10.5 of guidelines as illustrated in Question no. 30 above. For applications filed after 12 months, the compounding charge so calculated shall be increased by 50% as per para 10.7. (Ref: para 10 ofthe guidelines)
Illustration: Assessee had made TDS default ofRs 10,00 ,0001- for 3 months during FY 2019-20. The prosecution has been launched on 01104/2022 uls 2768 of the Income Tax Act.
Scenario Case Date of Time Compounding
Applicalion Elapsed
Rate Charge
1211 012022
Less than Normal compounding charge Case-I (Pending as of Rs 45,000/· Scenario-) 12 months as per Annexure-4 17/ 10/2024)
(No earlier
application 3 11 1012024 Increase by 50% of normal Rs 67,500/- More than rejected) Case·2 (filed under revised 12 months compounding charge as per guideline) Annexure-4 (1.5·Rs 45,000)Scenario-2 1211 012022 Less than (First (Rejected) 12 months NA(application rejected) NA
application
rejected, Case·3
3111012024 1.2 times of normal revised More than compounding charge increased Rs 8 1,000/- {1.5'
application (filed under revised 12 months ( 1.2' Rs 45 ,000)) guide line) by 50%Q.33 How to compute compounding charges fo r offence uls 276CC in the absence of information on tax sought to be evaded or the tax on under-reported income due to assessment/reassessment being not carried out?
Ans: In such cases, compounding charges shall be the mlJllmum compounding charge applicable for compounding of offence uls 276CC as per Annexure-4 of the guideline. (Ref: Annexure 4 of the guidelines)
Q.34 Whether compounding charges include Prosecution Establishment Expenses and Litigation Expenses?
Ans: No. Such expense have been removed in revised guidelines.
Q.35 Is there any specific path fo r payment of compounding charge?
Ans: Yes, there is a path on e-filing website of the department and payment may be made by login through PAN or TAN. The path of the same is as under:
"Login on e-Filing portal ..... e-Pay Tax ..... New Payment ..... Income Tax ..... Minor Head ..... Other Receipts (500) ..... compounding charges". (Ref: para 9.9 of the guidelines)
Q.36 Whether the compounding charge can be made under PAN in case the applicant being a deductor?
Ans: The compounding charge shall be made under TAN of the deductor. However, if the applicant is the co-accused then compounding fees may be made under PAN of co-accused as the co-accused may not have access to the TAN of main accused.
"Login on e-Filing portal through TAN ..... e-Pay Tax..... ew Payment ..... Income Tax ..... Minor Head ..... Other Receipts (500) ..... compounding charges". (Ref: para 9.9 of the guidelines)
G. Extension of time (Compounding char ges)
Q.37 Whether the time for payment of compounding charges may be extended?
Ans: Yes, up to a maximum period of 24 months, as per conditions mentioned in para 9.4 of the guidelines. (Ref: par a 9.4 of the guidelines)
Q.38 Whether time fo r payment of compounding charges may be extended beyond 24 months?
Ans: No, beyond 24 months extension is not allowable and the application shall be rejected followed by initiation of prosecution proceedings, if not already initiated. However, the applicant can file new application for the same particulars which shall be treated as a subsequent application for the purpose of determination of compounding charges. (Ref: para 9.4 and 10.3 of the guidelines)
Q39. As per the new guidelines, the payment period for compounding charges may be extended up to 24 months only from the end of the month in which the compounding charges were intimated. For pending applications where the payment initiation was made before the issuance of the revised guidelines but not fully paid, how will the period of 24 months be calculated? Additionally, will such applications require approval for extension under paragraph 9.4 of the guidelines?
Ans: For applications pending as on 17.10.2024, wherein compounding charges were not fully paid within time allowed as per earlier Guidelines or wherein time allowed had not elapsed, the period of 24 months will commence from the end of the month ' of issuance of these guidelines viz October 2024. The extension of timelines will require approval as prescribed in para 9.4 of the Guidelines.(Ref: para 3.1 and 9.4 of the guidelines)
Q.40 Are extension for payment of compounding charges subject to interest or additional charges?
Ans: No, interest or additional charges are not applicable on extension allowable under para 9.4 of the guidelines. Further, for cases pending as on date of issuance of revised guidelines, additional compounding charge (chargeable under previous guidelines) shall not be applicable and compounding charge shall be determined as per Para 10 of the guidelines. (Ref: para 9.4 and 10 of the guidelines)
H. Co -accused and abettors-offence by Companies and HUF
Q.41 Whether co-accused can file compounding application under revised guideline?
Ans: Yes, co-accused may apply for compounding of offence separately or conjointly. (Ref: para 11 of the guidelines)
Q.42 Where the compounding application of the co-accused was rejected earlier on the ground that the main accused has not filed for compounding, whether such applicants will be eligible for filing again? rfyes, whether such application shall be a subsequent application?
Ans: Yes, other than the case where application was rejected in past on merit, any of the coaccused applicant is eligible to file compounding application again separately or conjointly. Such application shall be treated as a subsequent application for the purpose of determination of compounding charges. (Ref: para 3.2, 11 and 10 of the guidelines)
Q.43 Similarly, where the compounding application of the main accused was rejected earlier on the ground that the co- accused has not filed for compounding or gi yen undertaking, whether such applicants will be eligible for filing again? If yes, whether such application shall be a subsequent application?
Ans: Yes, other than the case where application was rejected in past on merit, the main accused applicant is eligible to file compounding application again separately or conjointly with the coPage 10 of 13
accused. Such application shall be a subsequent application for the purpose of determination of compounding charges. (Ref: para 3.2, 11 and 10 of the guidelines)Q.44 If any application filed by co-accused or accused under previous guidelines is pending, whether they are required to file a fresh application under revised guidelines?
Ans: o. All such pending applications will be clubbed together and none of the applicants (main accused and/or co-accused) are required to file a fresh application under revised guidelines. This consolidated appli cation shall be considered as first application for the purpose of determination of compounding charges. (Ref: para 4.2.4, 11 and 10 of the guidelines)
Q.45 If application is filed by main accused or co-accused or by both of them co-jointly, whether separate compounding fee shall be applicable fo r co-accused or not?
Ans: 0 separate compounding fee for co-accused shall be payable, irrespective of the fact that application has been filed by main accused or co-accused or by both of them co-jointly. Only compounding charge(s) for tlle concerned offence(s) shall be payable, as per para 10 of the revised guidelines. Once such payment is made by the applicant being main accused or coaccused or both of them conjointly, the Competent Authority shall compound concerned offences for main accused as well as all the co-accused. (Ref: para 11 and 10 of the guidelines)
Q.46 Whether any person other than mam accused or co-accused can file compounding application for compounding of an offence of company or HUF?
Ans: No, person other than main accused or co-accused carmot file compounding application. The applicant is required to disclose his status as main accused or co-accused in the serial no. 4 of compounding application (A1mexure-l of revised guidelines). (Ref: para 11 and Annexure -1 of the guidelines)
Q.47 What will happen if co-accused has not been identified by the department for offences U/S 278B?
Ans: In cases where co-accused have not been identified or such identification is under progress U/S 278B of the Income Tax Act, either the main accused or any person who can substantiate along with supporting documents that he was in-charge or responsible for conduct of the business of the company during the time of conunission of offence, to be considered as 'deemed to be guilty' U/S 278B(I), can file an application as co-accused. (Ref: para 11 of the guidelines)
Q.48 If any person filed a compounding application as a co-accused in the scenario given at Q. o. 46, whether there is any requirement to identify other co-accused?
Ans: In such cases there will be no requirement to identify other co-accused for the purpose of the compounding of the offence. However, if such compounding application is rejected for any reason, all co-accused shall need to be identified as per Section 278B of the Income Tax Act to file prosecution complaint before the concerned Court. (Ref: para 11 and 10 of the guidelines)
Q.49 Can co-accused furnish an undertaking for withdrawal of appeals as required in para 4.5 of the guidelines, on behalf of the main accused?
Ans: No, co-accused cannot furnish undertaking for withdrawal of appeal on behalf of the main accused. Such undertaking shall be furnished by the main accused only which must be attached with the application ifapplication has been filed by the co-accused, since offences of both main accused and co-accused are being compounded, under para 11 .2 ofthe revised guidelines. (Ref: para 11 of the guidelines)
Q.50 If application has been filed by only main accused or co-accused, in such case against whom name the compounding order shall be passed?
Ans: The compounding order U/S 279(2) shall be passed in the name of person(s) who have applied for compounding. If co-accused has applied, then order shall include the name of main accused also. Further, in a case where main accused has applied and co-accused has been identi fied, the order shall be passed in the name of main accused and co-accused. (Ref: Annexure-l and 3 of the guidelines)
Q.51 Whether co-accused can file compounding application where the liability of main accused company ceases under Insolvency Bankruptcy Code?
Ans: The liability of co-accused does not extinguish even if the liability of main accused company ceases. The co-accused may file compounding application in such cases, either separately or conjointly and payment of compounding charge can be made by co-accused or the main accused company. (Ref: para 11.4 of the guidelines)
Q.52 The assessee company/main accused is under NCL T/CIRPlLiquidation and either there is moratorium due to the provisions of section 14 or liquidation process has been initiated against the company due to the provisions of section 33 of the Insolvency Bankruptcy Code(' \BC'). In such conditions, whether Para 4.3 of the guidelines (regarding payment of all taxes, interest and othe r sums) will be applicable or not?
Ans: The conditions prescribed in paragraph 4.3 of the Guidelines will apply, as explained below:
Case 1: During the Moratorium Period: The demand due from the main accused is not extinguished during the moratorium period. If a co-accused files an application for compowlding during the moratoriwll period, paragraph 4.3 of the guidelines will apply.
Case 2: After Rejection of the Resolution Plan (Liquidation Proceedings): Upon rejection of the resolution plan, liquidation proceedings commence under Section 33 of !BC. The pending demand becomes a valid claim before the liquidator. If a co-accused files an appl ication for compounding after rejection of the resolution plan, paragraph 4.3 of the guidelines will apply.
Case 3: After Approval of the Resolution Plan : Once the resolution plan is approved under Section 31 of the mc, the main accllsed company is absolved of the offence, provided there is change in the management in terms of conditions prescribed in section 32A of the IBC. The co-accused(s), however, continue to be liable for the offence. If a co-accused fi les an application for compounding after approval of the resolution plan, paragraph 4.3 of the guidelines will apply.
(Sha~~t: ADIT(prosecution), CBDT, New Delhi
Copy toI. PS to FMlPS to MoS (R)
2. PS to Secretary(Revenue)
3. The Chairman, CBDT
4. All Members, CBDT
5. All Pro DOsIT / Pr. CCslT
6. All officers of the rank of Joint Secretary/CIT and above in CBDT
7. The C&AO ofIndia
8. The CIT (Media & Technical Policy), CBDT
9. The ADO (Systems)-4 for uploading on www.incometaxindia.gov.in
10. Additional DIT, Databa e cell, for uploading on www.irsofficersonlin e.gov. in~~3''")l>,s (Shaho er aur)
ADIT(prosecution), CBDT, New Delhi
On a prosecution complaint or show-cause notice for an offence such as failure to deposit tax deducted, and in reworking a compounding application that was pending or rejected when the revised guidelines came out.
It mentions. Circular No. 04/2025
Source: the Income Tax Department’s own published text — its page for this instrument.