Are you eligible for tax demand waiver of Rs 25,000?

The Finance Minister Nirmala Sitharaman has announced an income tax amnesty for taxpayers having outstanding direct tax demand disputes with the income tax department. As per the announcement, outstanding direct tax demands up to Rs 25,000 till financial year (FY) 2009-10 and up to Rs 10,000 between FY 2010-11 and FY 2014-15 will be withdrawn. In layman terms, this means that taxpayers having pending tax demand disputes up to the limit announced for the specified financial years would be eligible for this benefit.

However, there is a grey area regarding this tax demand waiver: Who is eligible for the tax demand waiver? This is not as clear as it appears.

Will everyone with outstanding direct tax demands for the specified financial years get a demand waiver of Rs 25,000/ Rs 10,000 as applicable or only those whose demands are equal to or less than Rs 25,000 / Rs 10,000?

Shalini Jain, Tax Partner, People Advisory Services, EY India says, “The Budget 2024 provides for withdrawal of unverified/disputed direct tax demands up to Rs 25,000/Rs 10,000 for specified financial years. As some of these old demands have hindered genuine refunds of subsequent years for taxpayers, withdrawal of such demands would mitigate the hardships faced by taxpayers. It seems that the tax demand waiver would apply to a situation where the outstanding demand is less than the stipulated amount (Rs 25,000/Rs 10,000) but it would be good to get a clarity from the Government on whether demand which is more than the stipulated amount would also get a waiver upto Rs 25,000/Rs 10,000.”

Also Read: All tax demands notices up to Rs 25,000 withdrawn in Budget 2024

Cut off of Rs 25,000/Rs 10,000 applies to tax or tax plus interest?

Usually, when a tax demand notice is sent by the income tax department, it gives a consolidated amount which includes interest on the tax demanded as well. The budget speech of the FM does not clarify whether the tax demand limit of Rs 25,000 includes interest portion as well. The income tax laws levy additional interest at the rate of 1 per cent per month on the outstanding tax amount.

For example, it may happen that actual tax demand is Rs 23,000 for FY 2007-08 however, due to interest levied, a taxpayer may be liable to pay Rs 30,000 (including interest). So, since, the actual tax demand amount is below Rs 25,000, will the taxpayer benefit from this announcement? Or will the cut off of Rs 25,000 apply to tax plus interest? In the latter situation a large number of tax payers would become ineligible for the waiver. So whether ‘demand’ includes only tax or ‘tax plus interest’ impact the eligibility of tax payers to get the waiver.

“The announcement made by the FM is with respect to waiver of tax demand where the quantum is upto Rs 25,000/ Rs 10,000 for the specified financial years. Since interest is levied on the demand which remains outstanding, there needs to be a clarity on whether for the purpose of determining the eligibility for waiver of tax demand – interest on outstanding demand would also be considered”, says Jain.

S.Vasudevan, Executive Partner, Lakshmikumaran & Sridharan Attorneys says, “The Finance Minister has proposed to withdraw outstanding direct tax demands upto Rs 25,000 pertaining to the period up to financial year 2009-10 and up to Rs 10,000 for financial years 2010-11 to 2014-15. No amendments have been proposed in the Income-tax Act as of now to implement this scheme. It is likely that the CBDT may issue instructions or circular in this regard later detailing the scope and coverage of the scheme. It will be interesting to see how these thresholds of Rs 25,000 and Rs 10,000 are to be computed. It is not clear if the said one-time write-off of demand will cover only tax demand or even interest and penalty. Further, it needs clarification if these thresholds are to be considered year-wise or on a cumulative basis for demands spread across various years. In the speech, the Minister has also referred to “non-verified”, “non-reconciled” or “disputed” direct tax demands. The meaning to be assigned to each of these terms will have a bearing on which demands qualify for the proposed write off. In addition, the consequential effect on collateral proceedings arising out of such tax demands like penalties, criminal prosecution, etc. against the taxpayers is not yet clear. We believe that these nitty-gritties will get announced later by the CBDT.”

What finance minister said in her budget speech?

While making no change in the income tax slabs and rates in the interim budget, the finance minister announced move for taxpayer services. According to budget speech, “There are a large number of petty, non-verified, non-reconciled or disputed direct tax demands, many of them dating as far back as the year 1962, which continue to remain on the books, causing anxiety to honest tax payers and hindering refunds of subsequent years. I propose to withdraw such outstanding direct tax demands up to Rs 25,000 pertaining to the period up to financial year 2009-10 and up to Rs 10,000 for financial years 2010-11 to 2014-15. This is expected to benefit about a crore tax-payers.”

An individual can get outstanding tax demand notices under various sections of the Income-tax Act, 1961. Usually, a salaried individual gets six types of tax notices under sections – 143(1), 139(9), 142, 143(2), 148 and 245.

Section 143(1) tax notice is sent when tax demand is payable once the income tax return is processed by the CPC, income tax department. Section 139(9) tax notice is sent when an individual files a defective income tax return. This includes filing ITR using wrong ITR form or any other error made while filing tax return. Similarly, to adjust the past outstanding dues with the current year’s income tax refund, a notice under Section 245 is issued to the taxpayer.

Roy Walsh

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