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Also Read: All tax demands notices up to Rs 25,000 withdrawn in Budget 2024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