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The Hon’ble Finance Minister in the interim budget on 1 February 2024 made an announcement in her speech to withdraw direct tax demands up to Rs.25,000 pertaining to the period up to financial year (FY) 2009-10 and up to Rs.10,000 for FY 2010-11 to FY 2014-15. The intention behind such proposal was to reduce the burden of taxpayers. This proposal will withdraw the plethora of disputed direct tax demands and provide relief to many taxpayers (about one crore as stated in the budget speech).

This article summarizes a recent Order  issued by the Central Board of Direct Taxes (CBDT), on remission or extinguishment of small tax demands outstanding as on 31 January 2024 under the Income Tax Act 1961 (ITA) or Wealth Tax Act, 1957 or Gift Tax Act 1958, (referred as relevant Acts).

1. The CBDT order broadly provides below guidelines/ conditions based on which the tax demands will be withdrawn and same will be implemented by Directorate of Income Tax (Systems)/ Centralized Processing Centre (CPC), Bengaluru, preferably within two months.
   • The tax demands to be waived will be those for financial year up to 2014-15.
   • The monetary limit of outstanding tax demands which are to be remitted or extinguished are as follows:

Financial year	Demand outstanding
Up to 2009-10	Each demand entry up to INR 25,000/-
2010-11 to 2014-15	Each demand entry up to INR 10,000/-

2. However, there is a cap of Rs. 1,00,000/- per taxpayer on the principal component of tax demand under these Acts.  Additionally, demands exceeding Rs. 10,000/- or Rs. 25,000/- will be disregarded for the purpose of this calculation. While computing the maximum ceiling limit, the following shall also be considered:
   • Tax demand entries would include principal component of tax demand and any interest, penalty, fee, cess, or surcharge under the relevant Act.
   • Any demand entry exceeding the individual monetary limit shall not form part of the maximum ceiling limit.
   • Remission/extinguishment of demand will be undertaken in a chronological manner i.e., earliest assessment year to subsequent assessment years.
   • In order to compute the ceiling limits of Rs. 1 lakh, any demand entries exceeding individual monetary limits shall not be considered;
   • Fraction of any demand entry shall not be considered for computing the ceiling limit of Rs. 1 lakh.

3. The demand waived will not be regarded as income of the taxpayer and hence no additional tax liability shall arise in the hands of the taxpayer pursuant to remission or waiver of tax demands.

4. There shall be no remission/extinguishment of outstanding demands with respect to tax deduction at source (TDS) and tax collection at source (TCS) provisions of the ITA.

Also Read: Interim Budget 2024: Key Highlights and Analysis

5. Post the remission/extinguishment of demands, no interest on account of delay in payment of demand shall be levied under any relevant Acts.

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

7. Withdrawal/ remission of tax demands under this Order will not give any right to the taxpayers to claim credit or refund of waived amount and such waiver shall also not grant immunity from any ongoing criminal proceedings or litigations in the case of a taxpayer.

8. In the below example, all the demand entries are related to different matter where separate demand notices have been issued to the taxpayers/ assessee and these demands are outstanding as on 31 January 2024. Further, these demands are net of refund, or any other credit adjusted in respect of that FY or any other FY. These demands also include any interest, cess or surcharge, if any, till the date of the demand notice issued/created/modified.

Financial Year (FY)	Amount of Demand	Eligible Amount	Cumulative Eligible Amount	Remarks
1980-81	21,000	21,000	21,000	Entire amount is eligible as the amount of demand is less than INR 25,000
1991-92	26,125	Nil	21,000	Tax demand is more than INR 25,000 hence not eligible for waiver.
1995-96	24,999	24,999	45,999	Entire amount is eligible as the amount of demand is less than INR 25,000
2009-10	20,001	20,001	66,000	Entire amount is eligible as the amount of demand is less than INR 25,000
2011-12	15,000.00	–	66,000	Tax demand is more than INR10,000 and hence not eligible for waiver
2012-13	9,000.00	9,000	75,000	Entire amount eligible as within the limit of INR10,000
2013-14	11,000.00	–	75,000	Although the limit of INR100,000 is not exhausted, given that the tax demand is more than INR 10,000 the taxpayer is not eligible for waiver.
2015-16	9,500	–	75,000	Tax demands only up to tax year 2014-15 covered and hence not eligible for waiver

Comments:

This proposal is a going to benefit small taxpayers who have pending demands and it will certainly improve ease of doing business. Further, it will also help in in expediting and releasing many refund claims for subsequent years which otherwise were not issued due to pending tax demands.

The timeline to complete this process has been stated to be two months, which would also provide a quick resolution for eligible taxpayers, and it is expected that this remission is likely to benefit 1 crore taxpayers in India.

However, the same may not necessarily reduce litigation at the higher levels as the limits before the higher levels were enhanced in the previous budget – for appeals before the Income Tax Appellate Tribunal – the limit was enhanced to Rs 50 lakh, for appeals before high courts – the limit was enhanced to Rs 1 crore and for special leave petitions / appeals before Supreme Court – the limit was enhanced to Rs 2 crore. Hence, appeals pending before higher authorities may not see a significant reduction.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement

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