If you are an income tax payer who has received a notice from the income tax department for an outstanding tax demand, you may be in for a pleasant surprise. The Central Board of Direct Taxes (CBDT) has recently announced that it has remitted and extinguished eligible old tax demands up to a ceiling of ₹1 lakh per assessee for the assessment years up to 2015-16. This means that if you have a pending tax demand of less than ₹1 lakh, you may not have to pay it anymore. This is a welcome relief for many taxpayers who have been facing difficulties in resolving their tax disputes with the department.
What is the outstanding income tax demand?
Outstanding tax demand is the amount of tax that the income tax department claims you owe them. This may arise due to various reasons, such as:
- You have not filed your income tax return (ITR) or filed it late.
- You have made a mistake or omission in your ITR or claimed excessive deductions or exemptions.
- You have not paid the self-assessment tax or advance tax on time or in full.
- You have not reported your foreign income or assets or paid tax on them.
- You have not complied with the tax notices or orders issued by the department.
- You have been selected for a scrutiny assessment or audit by the department, and they have found discrepancies in your income or expenses.
When the department raises a tax demand against you, they send you a notice under Section 156 of the Income Tax Act, 1961. This notice specifies the amount of tax, interest, penalty, fee, cess, or surcharge that you have to pay and the due date for payment. If you do not pay the tax demand within the due date, you may face further consequences, such as:
- Interest on delayed payments is charged at the rate of 1% per month or part of the month under Section 220(2) of the Income Tax Act.
- Penalty for default in payment of tax at the rate of 50% of the tax amount under Section 221 of the Income Tax Act.
- Recovery proceedings by the department, such as attachment of your bank accounts, properties, or salary, or sale of your assets under sections 222 to 232 of the Income Tax Act.
- Prosecution for willful evasion of tax under Section 276C of the Income Tax Act.
Why has the CBDT remitted the small tax demands?
The CBDT has taken this step to provide relief to taxpayers and reduce the litigation burden on the department. According to the CBDT, there were about 1.8 crore cases of outstanding tax demand as of January 31, 2024, amounting to about ₹4.95 lakh crore. Out of these, about 1.05 crore cases had a demand of less than ₹1 lakh, amounting to about ₹5,600 crore. The CBDT observed that these small tax demands were mostly uncollectible and involved high administrative costs. Moreover, many of these demands were disputed by the taxpayers and were pending before various appellate forums.
Therefore, the CBDT decided to remit and extinguish these small tax demands in order to:
- Provide relief to the taxpayers who have been facing hardship and harassment due to the tax demands.
- Reduce the pendency of appeals and litigation before the income tax authorities, tribunals, and courts.
- Save the time and resources of the department and the taxpayers in pursuing and resolving these cases.
- Improve the compliance and trust of taxpayers in the tax system.
The CBDT also clarified that this remission and extinguishment of tax demand is not an amnesty scheme or a waiver of tax liability. It is only a one-time measure to settle the old and small tax demands that are not feasible to collect or litigate. The CBDT also stated that this measure is in line with the announcements made by Finance Minister Nirmala Sitharaman in the Budget 2024, where she proposed to withdraw pending direct tax litigation involving disputed tax of up to ₹10 lakh per case.
How do I check the status of your tax demand remission?
If you are a taxpayer who has received a notice for an outstanding tax demand, you may want to check whether your tax demand has been remitted and extinguished by the CBDT. To do so, you have to follow these steps:
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- Visit the income tax e-filing portal at https://www.incometaxindiaefiling.gov.in/
- Log in to your account using your PAN, password, and captcha code.
- Navigate to ‘Pending Action’ and look for ‘Response to Outstanding Demand’.
- Check the status of your outstanding demand. If your tax demand has been remitted and extinguished, you will see a message saying ‘Extinguished Demand’. If your tax demand has not been remitted and extinguished, you will see a message saying ‘Outstanding Demand’.
If your tax demand has been remitted and extinguished, you do not have to do anything further. You can consider your tax dispute settled and closed. However, if your tax demand has not been remitted and extinguished, you have to take appropriate action to resolve it. You can either:
- Agree with the tax demand and pay it online through the e-filing portal or through any authorized bank.
- Disagree with the tax demand and file a rectification request under Section 154 of the Income Tax Act if there is a mistake in the tax demand due to an arithmetical error, incorrect data entry, or mismatch of information.
- Disagree with the tax demand and file an appeal before the Commissioner of Income Tax (Appeals) under Section 246A of the Income Tax Act if there is a substantive issue in the tax demand due to a wrong interpretation of the law, facts, or evidence.
You have to file your response to the outstanding tax demand within 30 days from the date of receipt of the notice under Section 156 of the Income Tax Act. If you do not file your response by the due date, the department may initiate recovery proceedings against you.
Conclusion
The CBDT’s decision to remit and extinguish small outstanding tax demands is a welcome move for taxpayers and the department. It will provide relief to taxpayers who have been facing difficulties in resolving their tax disputes with the department. It will also reduce the pendency of appeals and litigation before the income tax authorities, tribunals, and courts. It will also save the time and resources of the department and the taxpayers in pursuing and resolving these cases. It will also improve the compliance and trust of taxpayers in the tax system.
If you are a taxpayer who has received a notice for an outstanding tax demand, you should check your status on the income tax e-filing portal and take appropriate action to resolve it. If your tax demand has been remitted and extinguished, you can consider your tax dispute settled and closed. If your tax demand has not been remitted and extinguished, you should either agree with the tax demand and pay it or disagree with the tax demand and file a rectification request or an appeal.
How do I file a rectification request?
A rectification request is a way to correct any mistake apparent from the record in the intimation or order issued by the income tax department. You can file a rectification request online through the income tax e-filing portal if you have received an intimation under Section 143(1) or 16(1) of the Income Tax Act, 1961. Here are the steps to file a rectification request online:
Log in to the income tax e-filing portal at https://www.incometaxindiaefiling.gov.in/ using your PAN, password, and captcha code.
Navigate to ‘Services’ and click on ‘Rectification’.
Click on ‘New Request’ and select ‘Order passed under’ as ‘Income Tax’. Select the relevant assessment year from the dropdown and click ‘Continue’.
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Select the request type as per your rectification reason. You have the following choices to select from:
Reprocess the return: If you want the department to reprocess your return based on the latest data available with them, such as TDS, advance tax, etc.
Tax credit mismatch correction: If you want to correct the tax credit mismatch between your return and the department’s records, such as TDS, advance tax, etc.
Additional information for 234C interest: If you want to provide additional information for computation of interest under section 234C, such as due dates of installment, amount of installment, etc.
Status correction: If you want to correct the status of your return, such as processed, defective, etc.
Exemption section correction: If you want to correct the exemption section claimed in your return, such as 10, 10A, 10AA, etc.
Return data correction (offline): If you want to correct the data in your return by uploading an XML file,.
Return data correction (online): If you want to correct the data in your return by editing the schedules online,.
Depending on the request type, you may have to select the rectification reasons, schedules, or upload the XML file. Follow the instructions on the screen and click ‘Continue’.
After submitting your request, you will be directed to the e-Verification page. You can verify your request using any of the available methods, such as Digital Signature Certificate (DSC), Electronic Verification Code (EVC), Aadhaar OTP, etc.
Once your request is verified, you will receive an acknowledgment number. You can track the status of your rectification request using the same number.
