In an attempt to expedite settlement of around 27,000 prosecution cases, the finance ministry has decided to significantly slash the compounding fee charged by the income-tax department for withdrawal of cases by defaulters.

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According to revenue department officials, the compounding fee for default of less than Rs 1 lakh on tax deduction at source will be reduced to 2 per cent from 5 per cent.

For defaults over Rs 1 lakh (Rs 100,000), the charge will be cut to 2 per cent from 10 per cent.

The officials said Finance Minister Jaswant Singh wanted to create an environment that would result in settlement of 75 per cent of the prosecution cases. Many of these cases had been pending for over 15 years, they said.

Similarly, the compounding fee charged by the department for late filing would be scaled down from 5 per cent to 2 per cent, the officials said. A circular on the new rates for compounding fees would be issued within the next few days, they added.

At the current rate of disposal, it might take about 70-80 years for the settlement of 27,000 prosecution cases, the officials estimated. Singh's diktat to the department was to dispose of all the cases in one year.

The Central Board of Direct Taxes has, accordingly, decided to set up a number of additional benches of the Income Tax Appellate Tribunal.

These benches would be created for a limited period to settle the prosecution cases, the officials said.

Most of these cases pertain to individual tax assessees. Officials said when prosecution cases were being heard, individuals could not move out of the country without the court's permission.

"This is a major problem for them and the idea is to settle all the cases within a year," said the official.

The procedural hassles were also being removed, they said. The department will now allow chief commissioners to conclude these cases without getting back to the department for checking if it is an individual's first offence or a repeat offence.

It would result in minimum savings of Rs 25 crore (Rs 250 million) a year for the department, the officials said. Besides legal fees and dislocation of work, income-tax officers incurred travel expenses, which will be saved henceforth.