Stricter rules on tax defaulters and tax evasion

Stricter rules on tax defaulters and tax evasion

Highlights of the newly revised rules by on Compounding of offense by the Central Board of Direct Taxes (CBDT)

 The Central Board of Direct Taxes (CBDT) on late Friday has issued revised rules on Compounding of offenses under the direct tax laws. This new rule shall become effective from 17th June 2019.

  • The new rules state that offenses which are related to any offense covered under the Benami Act are not compoundable.

  • The strict approach in managing with tax evasion has come to effect at a time when direct tax revenue collections are evaluated towards being below targets.

The newly revised guidelines on the compounding of offenses under the direct tax laws

The Government of India is tightening the action noose around a few classes of tax defaulters, for example, the individuals who hide black money offshore. These classes of taxpayers won't be certainly able towards compounding their wrongdoings (which is a procedure of paying a stiff compounding charge, in lieu of prosecution).

By strict actions on tax evaders, the revised rules issued by the Income Tax (I-T) Department have made severe wrongdoings under black money and benami laws commonly non-compoundable.

This implies that an individual or organization shall not have the option for settling a matter of tax evasion by simply paying the tax demand, penalty as well as interest.

The new rules would be effective from 17th June 2019 and are applicable towards each and every case for compounding received on or after this date. It might be noted that the revised rules would replace the previous rules which were issued in December 2014.

The listing of 13 cases, where the wrongdoings are not to be commonly compounded, and furthermore grouping the wrongdoings in two sections, the Central Board of Direct Taxes (CBDT) has guided its senior officers for circulating the revised rules for compliance by concerned officers.

The previous rules on the compounding of offenses by the Central Board of Direct Taxes (CBDT)

The prior the Central Board of Direct Taxes (CBDT) rules allowed compounding of wrongdoings identifying with undisclosed foreign bank accounts and abroad resources if the taxpayer has cooperated as well as paid the taxes. The Anti-Black Money Act of 2015, which was in this way presented, didn’t allow compounding. This Act had given a restricted window inside which individuals could come clean against payment of a flat 30% tax as well as stiff penalties. The revised rules have taken this forward and compounding isn't allowed both for cases covered under the Anti-Black Money Act and every wrongdoing identifying with undisclosed foreign bank accounts or assets.

The offenses forming category  

However, compounding would likewise not be available where it is proved that taxpayer-enabled others towards evading tax, for example, through entities utilized to launder cash. The bar likewise is applicable where a taxpayer generated fake invoices of sales or purchase or provided accommodation entries. The wrongdoings under the Benami Transactions Prohibition Act, as well, can't be compounded.

It could be said that normally accommodation (bogus) entries are directed through shell organizations, as share capital, so as to evade taxes. Or on the other hand, to launder cash, counterfeit loans are shown in account books by a business firm.

The offenses forming category   ‘A’ incorporate failure towards paying the tax deducted at source under Chapter XVII-B or tax payable under Section 115-0. Inability to pay the tax collected at source additionally falls under this category.

The offenses forming category ‘'B' incorporates wilful attempt towards evading taxes, failure towards producing accounts as well as documents, and counterfeit statement in verification.

While the first category offenses are available to compounding, offenses, for example, willful evasion of tax, as well as removal or concealment or transfer or delivery of property to thwart tax recovery in a search operation, are not to be compounded.

"Offenses under Sections 275A, 275B and 276 of the Act won't be compounded as per the new rules that override the one issued during 2014.

The rules state that a category 'A' offense on multiple events would not be commonly compounded.

The offenses which are not be compounded as per the new rules by CBDT

Any wrongdoing which has to bear on any wrongdoing under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 would not be commonly compounded, as per the new rules.

Furthermore, any wrongdoing which has bearing on any wrongdoing under the Benami Transactions (Prohibition) Act, 1988 would not merit compounding through tax authorities.

The CBDT rules stated that wrongdoings committed by an individual which, according to the data accessible with the Principal Chief Commissioner of Income Tax and different authorities concerned, have a bearing on a case under scrutiny (at any stage which includes enquiry, filing of FIR/ complaint) by the Enforcement Directorate, CBI, Lokpal, Lokayukta or some other Central or state organization are likewise not to be normally compounded.

Despite anything contained in these rules, the Finance Minister might relax up restrictions for compounding of an offense in a deserving matter, on consideration of a report from the Board on the appeal of an applicant,


Thus, the revised rules are progressively stringent and different offenses can't be compounded, a number of these identify with undisclosed foreign bank accounts as well as assets, Benami transactions, money laundering through accommodation entries, bogus invoices and so forth.


eStartIndia Team

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