Direct Tax Alert

CBDT issues Order to write off small outstanding tax demands pursuant to Interim Budget announcement
BACKGROUND

The Finance Minister while presenting the Union Interim Budget of 2024-25, proposed to withdraw old disputed outstanding tax demands as on 31 January 2024 under the Income Tax Act, 1961 (IT Act), Wealth Tax Act, 1957 and Gift Tax Act, 1958 up to a specified amount for the period up to Fiscal Year (FY) 2014-15. This was announced keeping in mind the government’s vision of improving taxpayer services and ease of doing business.

In order to bring this proposal into effect, the Central Board of Direct Taxes (CBDT) recently issued an Order1 to provide guidelines and procedures that would be followed for withdrawing these small outstanding tax demands. We at BDO in India, have hereunder analysed and summarised the key provisions of the said order and provided our comments on its impact hereunder:

  • The monetary limit of outstanding tax demands which are to be remitted and extinguished.

FY to which entries of outstanding demand pertain as of 31 January 2024

Monetary Limit of demand entries to be remitted or extinguished

Up to FY 2009-10

Each demand entry up to INR 25,000

FY 2010-11 to 2014-15

Each demand entry up to INR 10,000

 

  • It is pertinent to note that the remission and extinguishment of the above outstanding tax demands for a particular taxpayer cannot exceed the maximum ceiling of INR 1,00,000. This ceiling limit shall be determined after taking into consideration the following points:

    • Principal component of tax demand and any interest, penalty, fees, cess or surcharge levied under various provisions of the relevant Acts.

    • Any demand entry exceeding the individual monetary limits (i.e. INR 10,000 or INR 25,000 for the relevant FYs) shall not be considered while determining the ceiling limit.

    • Interest levied under relevant Acts for delay in payment of demand shall not be considered.

    • Remission and extinguishment of outstanding demand entries within the individual monetary limit shall be carried out starting from the earliest of the FY and then subsequent FY(s) i.e. in a chronological manner.

    • Fraction of outstanding demand shall be ignored while determining the ceiling limit. This shall be irrespective of the fact whether such demand falls within the individual monetary limit or not.

  • The demand waived will not be regarded as income of the taxpayer. If any tax liability arises as a result of the application of section 2(24)(xviii)2 of the IT Act, the same shall also be remitted and extinguished.

  • There shall be no remission and extinguishment of tax demands raised against tax deductors or tax collectors under Tax Deducted at Source /Tax Collected at Source provisions of the IT Act.

  • Remission/Extinguishment of outstanding tax demands will not give any right to the taxpayer to claim credit or refund of the waived amount.

  • Remission/Extinguishment of outstanding tax demands shall have no effect on any criminal proceedings pending, initiated, or contemplated. Further, it shall not grant any immunity from any ongoing criminal proceedings in the case of the taxpayer.

  • No audit will be required pursuant to Rule 19(1)3 of General Financial Rules 2017 for remission/extinguishment of outstanding demands.

  • The Directorate of Income-tax Systems/ Centralised Processing Centre (CPC), Bengaluru shall implement the withdrawal of these outstanding demands within 2 months from the date of this Order.

  • Illustration to depict how the individual monetary limit and ceiling limit operates            

Fiscal Year

 Demand Amount

Within Individual limit?

Cumulative limit of INR 100,000

Remarks

1968-69

23990

23990

23990

Entire amount is eligible since demand is up to 25000

1979-80

26000

NIL

23990

Tax demand is more than 25000 hence not considered

1991-92

24110

24110

48100

Entire amount is eligible since demand is up to 25000

2010-11

20000

NIL

48100

While the limit of INR 100,000 is not reached, tax demand is more than INR 10,000 hence entire amount is not eligible for a waiver.

2014-15

9000

9000

57100

Entire amount is eligible since demand is up to 10000

2015-16

8000

NIL

57100

While the ceiling limit of INR 100,000 is not reached, tax demands only up to FY 2014-15 are eligible for a waiver.

 

BDO IN INDIA COMMENTS

This is a welcome move by CBDT as it would benefit several taxpayers by relieving them from the burden of small tax demands outstanding for many years. Further, remission and extinguishment of such small demands would free up tax authorities' time allowing them to redirect their resources towards other high-value outstanding demands and disputes. Taxpayers should access their online accounts and navigate to ‘Pending Actions’ and ‘Response to Outstanding Demand’ to verify the status of extinguished demands related to them.
It is pertinent to note that while the Order states that the demand entries will include principal amount, interest, penalty, etc., it also states that consequent to remission, interest for delayed payment of demand shall not be required to be calculated. Hence, there appears to be some ambiguity whether demand entries already include interest for delayed payment, or it needs to be calculated separately. Further, clarity is required on whether the remission of demand will lead to the closure of ongoing litigation or not. Also, it is not clear whether the taxpayer will have the right to continue to litigate and seek refunds in cases where the outstanding demand is net of any refunds already adjusted.

 

1 CBDT Order F. No. 375/02/2023-IT-Budget, dated 13 February 2024

2 Section 2(24)(xviii) of the IT Act pertains to assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government) or state government or any other authority or body or agency in cash or kind to the taxpayer other than the subsidy or grant or reimbursement in accordance with section 43(1) of the IT Act.

3 Submitting statements showing the remissions of revenue sanctioned during the relevant period by competent authorities in exercise of discretionary powers vested in them by law to the Audit Officer or Account Officer of Central Government concerned.