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CBDT issues new guidelines for compounding
June, 18th 2019

India's direct taxes body has tightened framework for compounding of offences almost shutting the window for money laundering, non-disclosure of foreign assets or possession of a benami asset.

The latest guidelines from the Central Board of Direct Taxes, which come into effect from June 17, clearly state offences in this category cannot normally be compounded. However, finance minister can relax restrictions on consideration of a report from CBDT.

Tax experts say the new framework is stricter.

"The revised compounding guidelines have made it much more difficult to get compounding done for money laundering, black money act/non-disclosure of foreign assets and Benami cases," said Amit Maheshwari, partner, Ashok Maheshwary & AssociatesNSE -10.29 % LLP.

The latest guidelines, superceding the ones issued in December, 2014, classify offences into three categories. The first category of offences open to compounding include defaults under tax deducted or collected at source, failure to file return. The second category of offences, for which compounding will not be allowed, deal with willful evasion of tax, removal or concealment or transfer or delivery of property to thwart tax recovery in a search operation.

The third category of offences that "shall normally not be compounded" includes offences committed by a person for which he was convicted by a court of law under direct tax laws, enabling others to evade taxes, launder money by generating bogus invoices, offences relating to undisclosed foreign bank account or assets under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or under the Benami Transactions (Prohibition) Act,1988.

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