India: Compounding Of Offences Under Direct Tax Laws 2019- Penalty No Longer An Escape

Last Updated: 22 July 2019
Article by Raghav Gaind

Compounding of offences is not a matter of right. According to Section 279(2) of the Income Tax Act, 1961 ("Act"), any offence under Chapter XXII of the Act, may, either before or after the institution of the proceedings be compounded either by the Chief Commissioner of Income-tax or Director General of Income Tax as the case may be. Compounding of offences enables a defaulter to settle a case and avoid any kind of cumbersome trial by paying tax, interest and compounding charges. Earlier, in order to avoid the experience of prison life, the tax offenders used to except the discrepancies made in order to avoid payment of tax in front of the authorities and pay extra tax along with interest within a specific period of time.

With a prime motive of tightening the screws on the tax evaders, the Central Board of Direct Tax ("CBDT") has issued new guidelines of Direct Tax Laws 2019 ("Guidelines") in relation to the compounding of offences as detailed in the previous guidelines issued on December 23, 2014 ("December Guidelines"). These Guidelines are issued with an intention to curb evasion of tax under the major money laundering laws which inter alia includes Black Money Act, Benami Property Act, etc. The new guidelines will be effective from June 17, 2019, and apply to all the cases of compounding received on or after this date.


The major amendments to the Guidelines include insertion of Category B offences of the December Guidelines in Category A. Therefore, in order to avoid complicatedness, we have detailed the list of Category A and Category B offences as mentioned in the Guidelines:

Category A

Offences punishable under the following sections are included in Category A:

S. No.





(Prior to 01/04/1976) — Failure to make payment or deliver returns or statements or allow inspection.



(Prior to 01/04/1989) — Failure to deduct or pay tax



(w.e.f. 01/04/1989 and up-to 30/5/1997)- Failure to pay tax deducted at source under chapter XVII-B



Failure to pay tax deducted at source under chapter XVII-B or tax payable under section 115—0 or 2nd proviso to section 194B to the credit of the Central Government (w.e.f. 01/06/1997)



Failure to pay the tax collected at source



Failure to furnish return on income



Failure to furnish returns of income in search cases in block assessment scheme



(Prior to 1.04.1989) - Failure to comply with the provisions of section 269SS



(Prior to 1.04.1989) - Failure to comply with the provisions of section 269 T



False statement in verification etc. with reference to Category 'A' offences



Abetment of false return etc. with reference to Category 'A' offences

Category B

Offences under the following sections are included in Category B:

S. No.





Failure to comply with the provision of sections 178 (1) and 178 (3)



(prior to 01/10/1986)- Failure to comply with the provisions of section 269 AB or section 269 I.



Failure to comply with the provisions of sections 269UC, 269UE and 269UL


276C (1)

Wilful attempt to evade tax etc.


276C (2)

Wilful attempt to evade payment of taxes etc.



Failure to produce accounts and documents



False statement in verification etc. with reference to Category `B' offences



Falsification of books of account or documents etc.



Abetment of false return etc. with reference to Category `B' offences

In comparison to the December Guidelines, the offences under Section 276CC and Section 276CCC have been moved from Category B to Category A. Further, under the Guidelines sections 275A, 275B and 276 of the Act have been ripped off from Category B as detailed in December Guidelines and are regarded as Non-Compoundable offences in the Guidelines.

Form and Time limit for filing of the compounding application:

  • The application for compounding shall be filed in the form of the affidavit on the stamp paper bearing value of INR 100. In the December Guidelines, there was no requirement of filling the same in the form of an affidavit on a stamp paper;
  • Under the Guidelines, it is clearly detailed that the application of compounding may be filed by the applicant on its own motion irrespective of the fact whether the authorities are aware of an offence or not. However, it is pertinent to note here that no application shall be filed after the expiry of 12 months from the end of the month in which the complaint has been filed in any court of law for which compounding is sought;
  • It is clearly mentioned in the Guidelines that there shall no dues relating to the offence for which the compounding is sought before making the application. If found out then the same shall be intimated to the applicant and the applicant shall clear the same within 30 days from the date of intimation;
  • The applicant undertakes to pay the compounding charges determined in accordance with these Guidelines;
  • The applicant undertakes to withdraw appeals filed, if any, related to the offence(s) sought to be compounded. In case such appeal has mixed grounds, one or more of which may not be related to the offence(s) under consideration, an undertaking shall be given for withdrawal of such grounds as are related to the offence to be compounded.
  • Any application for compounding of offence under section 276B/276BB of the Act by an applicant for any period for a particular TAN should cover all defaults constituting offence under section 276B/276BB in respect of that TAN for such period.

Offences which are generally not compounded:

According to the Guidelines, the following expenses are generally non-compoundable:

  • Category A offences which have occurred on more than 3 occasions. However, such offences shall be allowed to be compounded if sufficient grounds are provided before the authorities;
  • Category B offence other than the First Offence. For the purpose of clarity, the Guidelines have explained the meaning of First Offence. The First Offence means:

 Offences committed prior to the following:

  1. Before the date of issuance of any notice in relation to the prosecution; or
  2. Before the intimation is given by the department to the applicant in relation to the filing of any prosecution; or
  3. Launching any prosecution;

Whichever is earlier.

 Offence(s) not detected by the department but voluntarily disclosed by the applicant prior to the filing of the application for Compounding of Offence(s) in the case under any Direct Tax Acts for one assessment year or more.

  • Offences in which the applicant has already been convicted under the taxation laws by any court of law;
  • Offences in which the application filed by the applicant has already been rejected except in the cases where benefit of rectification is provided under these Guidelines;
  • Proceedings in which the applicant has already been regarded as the main accused where it is found out that the applicant has enabled others for tax evasion by way of money laundering or bogus entries as the case may be.
  • Where it is found by the investigating agencies that the applicant is involved in any kind of anti-national or terrorist activities;
  • Any offence committed by the applicant in which the prescribed punishment is more than 2 years or more with or without fine and which has the bearing on the offence sought to be compounded;
  • Any offence committed by the applicant which has a bearing on the case under investigation by ED, CBI, Lokpal, Lokayukta or any other Central or State Agency;
  • Any offence committed by the applicant whose application for plea bargaining under Chapter XXI-A of 'Code of Criminal Procedure' in respect of any offence is pending in any court of law or where a court has recorded "mutually satisfactory disposition of such an application is not worked out" and such offence has bearing an offence sought to be compounded;
  • Any offence which has a bearing on an offence relating to undisclosed foreign bank account/assets in any manner;
  • Any offence which has bearing on any offence under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;
  • Any offence which has bearing on any offence under the Benami Transactions (Prohibition) Act,1988.
  • Any other offence, which the Pr. CCIT/CCITI Pr. DGIT/DGIT concerned considers not fit for compounding in view of factors such as to conduct of the person, nature and magnitude of the offence.


CBDT has come up with a tougher approach in dealing with tax evasion at a time when direct tax revenue collections in FY 2019 is estimated to be below the target aimed by the Finance Ministry. For the purpose of economic growth of the country and holding the money back in the country, India has been tapping all available sources of information from its treaty partner countries to identify those who have foreign income which is not disclosed. Such sharing of the information across national borders has made it harder to hide wealth abroad.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions