Income Tax Compounding Fees - 276CC Offences - Nonfiling of returns

By: Mr. Shashank Mundle - 13th November, 2019

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Provisions In The Revised Guidelines Issued On 19th June 2019 For Compounding Of Offences Under The Income Tax Act Pertaining To Offences U/S 276CC (Non-Filing Of Returns)

Prior to the issuance of the revised guidelines the compounding fees for compounding an offence u/s 276CC was calculated @ 2% per month on the net tax payable from the due date of the return till the completion of the assessment. The payments made by way of self-assessment tax were also considered while calculating the compounding fee i.e. if an assessee had paid any taxes by way of self-assessment the compounding fee was calculated after that date on the reduced amount of tax due after granting credit for any self-assessment tax paid.

Under the revised guidelines issued, the compounding fees have been increased to Rs.4,000 per day if the balance tax due exceeds Rs.25,00,000 or Rs.2,000 per day if the balance tax due is less then Rs.25,00,000 but in excess of Rs.1,00,000. If the balance tax due is less then Rs.1,00,000 then the compounding fee is restricted to Rs.1,00,000 with a minimum of Rs.10,000. Further, this compounding fee is calculated upto the date of completion of assessment without considering any tax paid by way of self-assessment before the completion of the assessment.

This is a draconian provision and the following example highlights the extreme difficulty an assessee would be put into:

Assume the assessee has not filed his return for AY2014-15.


Balance tax due is less than Rs.25,00,000 and more than Rs.1,00,000

Balance tax due exceeds Rs.25,00,000

Taxable income (predominantly salary) Rs.25,00,000 Rs.2,75,00,000
Tax on income Rs.5,97,400 Rs.83,22,400
TDS Rs.4,50,000 Rs.50,00,000
Net tax payable Rs.1,47,400 Rs.33,22,400
Self-assessment tax paid on 31/07/2014 (with interest) Rs.1,55,000 Rs.34,00,000
Due date of filing return 31/07/2014 31/07/2014
Return filed (hard) on as there is no facility to file delayed return online (and treated as non-est i.e. not filed) 15/01/2018 15/01/2018
Assessment u/s 143 rws 147 completed on 31/05/2019 31/05/2019
Compounding fees @ Rs.2000 per day Rs.4,000 per day
Compounding fees payable for 1,765 days 1,765 days
Compounding fees payable Rs.35,30,000 Rs.70,60,000

What is even more shocking is that even if the assessee has paid the entire tax due from him by way of self-assessment tax, the compounding fee as per the revised guidelines amounts to a huge amount of Rs. 35,30,000/ 70,60,000 calculated @ Rs.2,000/4,000 per day from 01/08/2014 till the date of completion of assessment as no credit is given to the self-assessment tax paid.

Further, the assessee who had a gross tax liability of Rs.5,97,400 is required to pay a compounding fee of Rs.35,30,000 (almost 6 times his gross tax liability) whereas an assessee whose gross tax liability is Rs.83,22,400 is required to pay Rs.70,60,000 (just 0.85 times his gross tax liability). This only highlights the perversity and arbitrariness of the provisions.

Any punishment needs to be proportionate to the default. In the example cited above, though the entire tax due has been paid by an assessee he is still considered to be trying to 'evade' taxes and is subjected to huge amounts of compounding fees.

The situation is even worse if an assessee has not filed his income for several years as the compounding fees are computed separately for each year.

It is the stated philosophy of this government to punish willful defaulters who are trying to cheat the country of its legitimate dues. But, levying such huge fees on relatively minor amounts which remain due for payment is neither fair, nor justifiable. A taxpayer, genuinely wanting to regularize his affairs and wanting to make a fresh start, may not even have the funds required to pay such humongous compounding fees and may be forced to go to prison. This would hardly serve anybody’s purpose.

The CBDT should forthwith review the compounding fees as mentioned in the revised guidelines issued in June 2019.


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