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  • Section 276B

    The Section 276B of the Income Tax Act, 1961 deals with failure to pay taxes to the Central Government. This includes:

    • Unpaid TDS dues under chapter XVII-B
    • Unpaid taxes u/s 115-O (sub section 2) and 194B (second proviso)

    The penalties when Section 276B is invoked includes a fine as well as rigorous imprisonment between 3 months to 7 years.

    The penalties can be avoided if the authorities are satisfied with the reason for failure to pay the tax dues. If the authorities don’t find a reasonable cause for you not paying the taxes, then you may be allowed to avoid prison sentence by paying a fee to respective authorities and get the prosecution charges waived. This waiver for prosecution is termed as compounding of offences.

    Compounding of Offences:

    The compounding fees here is 2%/month for cases before 1st April 1989 and 5% for cases on or after 1st April 1989. The chief commissioner of income tax (CCIT) is the authority that decides on compounding of offences.

    Compounding of offences cannot be claimed by a tax defaulter as a matter of right. In fact, the CCIT has the authority to reject compounding options by considering factors including assessee’s conduct, magnitude and nature of offence, and the circumstances surrounding the offence.

    The assessee should satisfy the below mentioned criteria to receive compounding of offence in case of technical offences:

    • A written request for the same has to be submitted.
    • The undisputed taxes, penalties and interest payments have been made.
    • The establishment expenses and compounding fee have been paid.
    • The compounding charges are equal to or less than Rs.10 lakhs and no complaint has been filed yet.
    • Subsequent offences after the first offence will be compounded if the default wasn’t done intentionally and the assessee has already taken steps to rectify the dues before being detected by the IT department.
    • Subsequent offences after the first offence will also entail 100% enhancement of compounding fee every time.

    The assessee should satisfy the following criteria to receive compounding of offence in case of substantive or non-technical offences:

    • A written request for compounding of offences has to be submitted.
    • The undisputed taxes, penalties and interest payments have been made.
    • The establishment expenses and compounding fee have been paid.
    • The substantive offence is the first one by the assessee.
    • The board has granted prior approval for the same.

    Apart from the criteria mentioned above, the authorities may allow compounding of offence in deserving and suitable cases.

    Compounding Fees:

    The compounding fees is calculated as per the date of committing the offence.

    If offence committed before 1st April 1989:

    • 10%/month or part of a month of the default amount where total amount is more than Rs.1 lakh.
    • 2%/month or part of a month of the default amount in other cases.

    If offence is committed on or after 1st April 1989:

    • 5%/month or part of a month of the amount of tax in default.

    Apart from the composition fees, the assessee should also pay prosecution establishment expenses that also covers any litigation charges. The prosecution establishment charges will be applicable at 10% of composition fee subject to an upper limit of Rs.50,000. If the smallness of default is such that there is no reason for launching prosecution while no prosecution has been filed yet, then there is no need to get an order passed for compounding of offence.

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