New Income Tax Rules: No escape just by Paying Penalty

New Income Tax Rules: No escape just by Paying Penalty

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• The revised guidelines issued by the Income Tax department have made serious offences under the black money and benami laws generally non-compoundable. It means that an individual or an entity would not be able to get away by just paying the tax demand, penalty and interest, under the new Income Tax rules. The new Income Tax rules kicked from June 17. It will be applicable to all cases for compounding received on or after this date.
• Listing 13 cases, where the offences are not to be generally compounded, and also grouping the offences in two parts, the Central Board of Direct Taxes (CBDT) has directed its senior officers to circulate the revised guidelines for compliance by concerned authorities.
• The earlier CBDT guidelines permitted compounding of offences relating to undisclosed foreign bank accounts and overseas assets, if the taxpayer has cooperated and paid the taxes. The Anti-Black Money Act of 2015, which was subsequently introduced, did not permit compounding. This Act had provided a limited window within which people could come clean against payment of a flat 30% tax and stiff penalties. The revised guidelines have taken this forward and compounding is not permitted both for cases covered under the Anti-Black Money Act and all offences relating to undisclosed foreign bank accounts or assets.
• The offences have been grouped in two categories. Group A includes failure to pay tax deducted at source under Chapter XVII-B, tax payable under Section 115-0, or failure to pay the tax collected at source.
• Group B includes offences of wilful attempt to evade tax, false statement in verification and failure to produce accounts and documents.
• Similarly, any offence which has bearing on an offence relating to un-disclosed foreign bank account or assets in any manner, any offence under the anti-black money law of 2015, the anti-Benami Act of 1988 will also fall under the no compounding category.
• Also, offences booked under sections 275A and 275B of the I-T Act (deals with failure to comply with search and seizure action) and 276 (removal, concealment, transfer or delivery of property to thwart tax recovery) “will not be compounded” including under sections 276C (wilful attempt to evade tax), 277A (falsification of books of account or documents among others).
• The first category offences in the new Income Tax rules are open to compounding while the rest aren’t. However, if the individual or entity makes a Category A offence on more than three occasions then it will not be generally compounded.
• The revised guidelines also dictate that any offence that has any bearing on any offence under the Black Money and Imposition of Tax Act, 2015 will not be generally compounded. Additionally, any offence under the Benami Transactions (Prohibition) Act, 1988 would not merit compounding.
• Moreover, any case at any stage including enquiry or filing of FIR, under investigation by the Enforcement Directorate, CBI, Lokpal, Lokayukta and any other central or state agency are not to be normally compounded.
• CBDT said, “Notwithstanding anything contained in these guidelines, the Finance Minister may relax restrictions in Para 8.1 for compounding of an offence in a deserving case, on consideration of a report from the Board on the petition of an applicant.”
• During the eight-month period ended November 2017, a thousand-odd cases had been compounded; whereas prosecution complaints were filed for various I-T offences, in double the number of cases. With revised guidelines, there is likely to be a spike in number of prosecution cases in coming months. The revised guidelines do provide that the finance minister may relax restrictions from compounding, in deserving cases, based on CBDT’s report on the matter.
• CBDT has provided for stringent conditions and limitations for compounding of offences. Offences like non-deposit of TDS are compoundable on not more than three occasions, whereas several other offences relating to wilful attempt to evade taxes can be compounded only if it was a first-time offence.
• While the compounding fees have been increased in many cases, there is a relaxation when it comes to delays in deposit of TDS. Here, it has been reduced to 2% per month (from 3%), if the defaulter has applied for compounding prior to the default being noticed by the I-T authorities.
• The new rules have also provided for a cap on the compounding fee, which cannot exceed the TDS amount plus interest if the TDS amount involved in the default is less than Rs. one lakh.

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