CBDT Circular No. 04/2025: Complete FAQs on Compounding of Offences Under Income-Tax Act

CBDT Circular No. 04/2025 provides detailed FAQs on the compounding of offences under the Income-Tax Act, 1961. It clarifies eligibility, fees, procedures, and jurisdiction, allowing applicants to resolve tax-related offences without prosecution.

The revised guidelines eliminate offence categorization, remove application limits, and permit fresh filings for previously rejected cases due to curable defects. The circular also covers payment procedures, competent authorities, co-accused liability, and compounding charges, ensuring a more transparent and simplified process for taxpayers.

FAQs on Compounding of Offences under the Income-Tax Act, 1961

A. Compounding of Offence

1. What is compounding of an offence?
   • It allows a defaulter to avoid prosecution by paying a specified amount.
2. Does compounding mean an admission of guilt?
   • No, it is a settlement mechanism and does not imply guilt.
3. Are all offences under the Income-Tax Act compoundable?
   • Yes, as per revised guidelines (17.10.2024), all offences can be compounded.

B. Competent Authority & Jurisdiction

4. Where should the compounding application be filed?
   • With the jurisdictional Pr. CCIT / CCIT / Pr. DGIT / DGIT.
5. Who is the competent authority for TDS offences across multiple jurisdictions?
   • The one overseeing the highest TDS default amount.
6. If multiple TANs fall under different jurisdictions, who is the competent authority?
   • The authority handling the highest TDS default.

C. Compounding Application & Fee

7. Is there a prescribed format and fee for compounding applications?
   • Yes. It must be in Annexure-1 format on ₹100 stamp paper with a prescribed fee.
8. Is there a time limit for filing a compounding application?
   • No, it can be filed at any time after the offence.
9. Do pending applications under old guidelines need to pay the new fee?
   • No additional fee is required.
10. Can the application fee be adjusted against compounding charges?
    • Yes, but only within the same application.
11. Can a rejected application be refiled?
    • Yes, if rejection was due to curable defects.
12. Do pending applications need to be refiled under the revised guidelines?
    • No, they will be processed under the new rules.
13. Can an applicant withdraw and refile their application?
    • Yes, but it will be treated as a subsequent application with higher charges.
14. Must all offences be included in a compounding application?
    • No, applicants can choose which offences to compound.
15. Is there a limit on the number of compounding applications a person can file?
    • No, but habitual offenders may face rejection.
16. Can a convicted person reapply under the new guidelines?
    • Yes, if previous rejection was based solely on conviction.
17. Can an application be refiled if returned due to defects?
    • Yes, if corrected within one month.
18. If an application is pending, does its original filing date remain valid?
    • Yes.
19. Can an applicant refile if their earlier application was rejected due to time limits?
    • Yes, since time restrictions have been removed.

D. Terms for Compounding

20. Must appeals related to the offence be withdrawn before applying for compounding?
    • No, but withdrawal is required after approval.
21. Can an applicant reapply if a writ petition was filed for earlier rejection?
    • Yes, with an undertaking to withdraw the petition.

E. Approval of Higher Authority

22. Can offences be compounded if the applicant was convicted for 2+ years?
    • Yes, but CBDT Chairman’s approval is needed.
23. Can cases involving ED/CBI be compounded?
    • Yes, unless related to anti-national or terrorist activities.
24. If one director/partner applies for compounding, but another is accused of tax evasion, is approval needed?
    • If any co-accused is involved in serious offences (e.g., money laundering), higher authority approval is required.

F. Compounding Charges

25. How are charges determined for previously rejected applications?
    • They are treated as second applications and charged accordingly.
26. How are charges determined for pending applications?
    • They will be recomputed under the new guidelines.
27. Can previous payments be credited when recomputing charges?
    • Yes, but only for the same offence and year.
28. Can charges from a withdrawn application be adjusted?
    • No.
29. Are charges increased for multiple applications?
    • Yes, subsequent applications attract higher rates.
30. Can an application be filed suo-moto (without prosecution)?
    • Yes, at any time.
31. Can an application be filed after prosecution is launched?
    • Yes, but if filed after 12 months, charges increase by 50%.
32. How are charges computed for Section 276CC offences if assessments are pending?
    • The minimum compounding charge applies.
33. Are prosecution and litigation expenses included in compounding charges?
    • No, they have been removed.
34. How can compounding charges be paid?
    • Through the e-Filing portal:
      Login → e-Pay Tax → Income Tax → Other Receipts (500) → Compounding Charges.

G. Extension of Time for Payment

35. Can the deadline for compounding payments be extended?
    • Yes, up to 24 months.
36. Can the extension exceed 24 months?
    • No. If not paid, the application is rejected, and prosecution may begin.
37. Are extended payments subject to interest or additional charges?
    • No.

H. Co-Accused & Corporate Offences

38. Can a co-accused apply for compounding?
    • Yes, separately or jointly.
39. If the main accused did not apply earlier, can a co-accused now apply?
    • Yes, but it will be treated as a subsequent application.
40. If a compounding application is pending, do co-accused need to reapply?
    • No, all pending applications will be clubbed.
41. Is a separate compounding fee required for co-accused?
    • No.
42. Can someone other than the main accused/co-accused apply for compounding?
    • No.
43. What happens if co-accused have not been identified?
    • The main accused or any responsible officer may apply.
44. Must all co-accused be identified for compounding?
    • No, but if rejected, all co-accused must be identified for prosecution.
45. Can a co-accused withdraw appeals on behalf of the main accused?
    • No, only the main accused can withdraw appeals.
46. If only the co-accused applies, in whose name will the compounding order be passed?
    • In both the co-accused and main accused’s names.
47. Can a co-accused apply if the main accused company is under insolvency?
    • Yes, co-accused liability remains.
48. If the main accused company is under liquidation, does Para 4.3 (tax payment requirement) apply?
    • Yes, in most cases.
49. What if the resolution plan is approved under IBC?
    • The company is absolved, but co-accused liability continues.
50. Can an applicant file suo-moto if their company is under CIRP/NCLT?
    • Yes.
51. Will an order be passed against co-accused if the main accused is dissolved?
    • Yes.
52. Can tax authorities deny compounding despite eligibility?
    • Yes, in exceptional cases like habitual offenders.

CBDT Circular No. 04/2025 simplifies and streamlines the compounding process under the Income-Tax Act, making it more accessible and transparent for taxpayers. By removing restrictions on application timelines, allowing fresh filings for curable defects, and clarifying jurisdictional authority, the revised guidelines provide greater flexibility.

You may prefer to download the official Circular No. 4/2025 : Frequently Asked Questions (FAQs) on Guidelines for Compounding of Offences under the Income-Tax Act, 1961 dated 17.10.2024.

The comprehensive FAQs address key concerns, ensuring that stakeholders have clear guidance on eligibility, fees, procedures, and payment mechanisms. Overall, these changes promote compliance while offering taxpayers a fair opportunity to resolve offences without undergoing lengthy prosecution.