There will be no need to go to jail in cases of income tax related offences. Taxpayers will be able to avoid going to jail by paying penalty. However, approval of tax authorities will be necessary for this. Actually, there is a provision of jail sentence for defaulting on certain types of payments in the Income Tax Laws.
The Central Board of Direct Taxes (CBDT) has taken a big step towards making tax compliance easier. It has said that all offences under the Income Tax Act will now be compoundable. This means that there will be no need to go to jail in cases of income tax related offences. Taxpayers will be able to avoid going to jail by paying penalty. However, approval of tax authorities will be necessary for this.
There is a provision of jail sentence for defaulting on certain types of payments in the Income Tax Laws. For example, if a taxpayer does not file income tax return, does not deposit TDS, evades tax or commits fraud in the books of accounts, then there is a provision of jail sentence. Finance Minister Nirmala Sitharaman had announced to simplify the compounding process in Budget 2024.
After this, CBDT issued guidelines on October 17, 2024. Compounding is a mechanism, which gives the defaulter the option to avoid legal proceedings after paying compounding charges. Tax authorities determine the compounding charges. CBDT has now offered clarification in this regard. It has tried to explain the entire process through circular number 04/2025 questions and answers.
- Compounding allowed for all violations
- Multiple applications allowed instead of a single compounding request
- 36-month time limit for filing compounding applications removed
- Offences under sections 275A and 276B also made compoundable
However, this comes at a price. The application fee for a single compounding request is Rs 25,000. The fee for a consolidated application is Rs 50,000. This fee is non-refundable. But it can be adjusted with the final compounding charge fixed by the authorities.
This change has brought great relief to businesses and individual taxpayers. They no longer fear legal action and will themselves show interest in tax compliance. This move is part of the government’s effort to simplify tax rules for taxpayers.
Now taxpayers will be able to settle their previous default cases and focus on tax compliance without fear of legal action. However, it is always beneficial for taxpayers to follow tax rules properly. This will prevent them from facing unnecessary penalties.
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