Compounding of GST Offences explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Compounding lets a person accused of a GST offence pay a prescribed sum and close the prosecution. It is not a right, and it has conditions, exclusions and a short payment window. This guide walks through section 138 and Rule 162 with the amounts worked out, and our GST notices and litigation team can assess your position.
Under section 138, the Commissioner may compound an offence before or after prosecution starts, on payment of a compounding amount. The application is made in FORM GST CPD-01 (Rule 162). Compounding is allowed only after tax, interest and penalty are paid. The Commissioner allows or rejects the application by an order in CPD-02 within 90 days, and the applicant must pay within 30 days or the order becomes void. The statutory band is 25% of the tax involved up to the full tax, and the Rule 162(3A) table fixes the amount by offence.
What section 138 says
Any offence under the Act may be compounded by the Commissioner, before or after the institution of prosecution, on payment to the Government of the compounding amount. Three conditions are built into the section:
- Compounding is allowed only after payment of the tax, interest and penalty involved in the offence.
- Compounding does not affect proceedings instituted under any other law.
- The amount is prescribed, but cannot be less than 25% of the tax involved or more than the full amount of that tax.
On payment, no further proceedings are initiated under the Act against the accused for the same offence, and criminal proceedings already started abate (section 138(3)).
The material points out that "compounding" is not defined in the Act, and that it is not a matter of right. The CPD-01 application itself carries a declaration that the applicant cannot claim compounding as a right.
Who cannot compound
Section 138(1) proviso bars the following:
| Barred person | Reason |
|---|---|
| A person already allowed to compound once for offences in clauses (a) to (f), (h), (i) and (l) of section 132(1) | Compounding once only for those offences |
| A person accused under clause (b) of section 132(1) | Issuing an invoice or bill without supply leading to wrongful ITC or refund |
| A person convicted of an offence under the Act by a court | Conviction bars compounding |
| Any other class of persons or offences prescribed | Power to prescribe further exclusions |
Since 1 October 2023 (Finance Act 2023), the earlier bars for repeat compounding across GST laws above Rs. 1 crore of supplies, for offences that are also offences under another law, and for clauses (g), (j) and (k) of section 132(1) have been removed. Clause (g), (j) and (k) now show as omitted in the text of section 132.
The Rule 162 procedure
| Step | Rule | Detail |
|---|---|---|
| Apply | 162(1) | FORM GST CPD-01 to the Commissioner, before or after prosecution |
| Report | 162(2) | Commissioner calls for a report from the concerned officer |
| Hearing | 162(4) | Application cannot be decided without a hearing; grounds of rejection must be recorded |
| Order | 162(3) | FORM GST CPD-02, within 90 days of receipt: allow (stating the amount and granting immunity from prosecution) or reject |
| Pre-condition | 162(5) | Tax, interest and penalty payable must already be paid |
| Pay | 162(6) | Within 30 days of receiving the CPD-02 order; proof to be furnished |
| Default | 162(7) | If not paid in 30 days, the order is vitiated and void |
| Withdrawal of immunity | 162(8) | Commissioner may withdraw if material particulars were concealed or false evidence given; the person may then be tried |
The Commissioner allows the application when satisfied that the applicant has made "full and true disclosure of facts relating to the case". The earlier requirement that the applicant had also co-operated in the proceedings was omitted by Notification 38/2023-CT dated 4 August 2023.
The compounding amounts (Rule 162(3A))
Rule 162(3A), effective 1 October 2023, sets the amount by offence and by the prosecution band. Prosecution depends on the amount of tax evaded, ITC wrongly availed or utilised, or refund wrongly taken: above Rs. 500 lakh, section 132(1)(i) applies (imprisonment up to 5 years and fine); above Rs. 200 lakh up to Rs. 500 lakh, clause (ii) applies (up to 3 years and fine).
| Offence under section 132(1) | If punishable under clause (i) | If punishable under clause (ii) |
|---|---|---|
| (a), (c), (d), (e) | Up to 75% of the tax evaded, ITC wrongly availed or utilised, or refund wrongly taken, minimum 50% | Up to 60%, minimum 40% |
| (f), (h), (i) | 25% of tax evaded | 25% of tax evaded |
| Attempt or abetment of (a), (c) to (f), (h), (i) | 25% of the amount | 25% of the amount |
Where an offence falls under more than one category, the higher compounding amount applies.
Illustration (not a real case):
- Tax wrongly availed of Rs. 6 crore, offence under clause (c) and punishable under clause (i) of section 132(1). Compounding amount: minimum 50% (Rs. 3 crore), up to 75% (Rs. 4.5 crore).
- Tax evaded of Rs. 3 crore, offence under clause (a) and punishable under clause (ii). Compounding amount: minimum 40% (Rs. 1.2 crore), up to 60% (Rs. 1.8 crore).
- Tax evaded of Rs. 3 crore for a clause (f) offence (falsifying records). Compounding amount: 25%, which is Rs. 75 lakh.
In each case the tax, interest and penalty must be paid first, and the compounding amount is on top of that.
A note on the old and new amounts
Before 1 October 2023, section 138(2) set the band at the higher of Rs. 10,000 or 50% of tax at the minimum and the higher of Rs. 30,000 or 150% of tax at the maximum. The present statutory band runs from 25% of the tax involved up to the full tax. The Rule 162(3A) table sits inside that band: its lowest figure is 25% and its highest is 75%.
Before you apply
- Confirm the offence clause and the amount of tax or ITC, because the prosecution band sets the row of the table.
- Check none of the section 138 bars applies, especially clause (b) of section 132(1) and any earlier compounding.
- Arrange payment of tax, interest and penalty first. Without it, the application cannot be allowed.
- Keep the 90-day and 30-day periods in the calendar. A missed 30-day payment voids the order.
- Disclose fully. False or concealed material can lead to withdrawal of immunity and trial.
Need help with prosecution or compounding?
A prosecution notice or summons is a point where careful advice on the offence clause, the amount and the sequence of payments matters. Our team can assess whether compounding is available and prepare the CPD-01 application through GST notices and litigation. If the matter began with a demand notice, section 74 notices are the usual starting point.
Key takeaways
- Section 138 lets the Commissioner compound before or after prosecution; it is not a right.
- Tax, interest and penalty must be paid first.
- Apply in CPD-01; order in CPD-02 within 90 days; pay within 30 days or the order is void.
- Persons accused under section 132(1)(b), and persons convicted by a court, cannot compound.
- Rule 162(3A) amounts: up to 75% (min 50%) or up to 60% (min 40%) for clauses (a), (c), (d), (e); 25% for clauses (f), (h), (i) and for attempt or abetment.
Read next
- Section 138: Compounding of Offences and the 2023 Changes
- Penalty for Fake Invoices and Beneficiaries: Section 122(1A)
- Section 74: Fraud, Suppression and the Penalty Slabs
- Compounding of Offences Under GST: Section 138
Disclaimer: Positions stated as on 30 September 2026, based on the CGST and IGST Acts and Rules as amended, the Finance Act 2026, and the ICAI Background Material on GST (14th Edition, July 2026). Verify current notifications before acting.