IT Department Sets Rs 1 Lakh Ceiling Per Taxpayer For Small Tax Demands

The Income Tax department has set a ceiling of Rs 1 lakh per taxpayer for the withdrawal of small tax demands. A tax demand is a document stating how much a person or organization owes in taxes. This decision follows the announcement made in the interim budget regarding the withdrawal of direct tax demands. The Income Tax department, through an official order, has outlined the criteria for the withdrawal, with a focus on demands until the assessment year 2015-16.

Finance Minister Nirmala Sitharaman, in the interim budget for 2024-25, had previously declared that tax demands for the assessment year 2010-11, up to Rs 25,000, and for the assessment years 2011-12 to 2015-16, up to Rs 10,000, would be withdrawn. This move is expected to benefit taxpayers and alleviate financial burdens.

The tax department's order specifies that outstanding demands related to income tax, wealth tax, and gift tax as of January 31, 2024, will be remitted and extinguished. However, this is subject to a maximum ceiling of Rs 1 lakh for any specific taxpayer or assessee. The limit encompasses the principal component of tax demand, along with interest, penalty, fee, cess, and surcharge.

This remission will not apply to demands raised against tax deductors or tax collectors under the Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) provisions of the Income-tax Act.

In the recent order, the Central Board of Direct Taxation (CBDT) clarified that the Rs 1 lakh limit covers outstanding demand entries in the tax authorities' books concerning the principal tax component, as well as interest, penalty, fee, cess, or surcharge under the three tax acts.

However, the extinguishment of demands does not grant taxpayers any claims for credit or refunds. Additionally, this action does not provide immunity from any pending, initiated, or contemplated criminal proceedings against the taxpayer.

The CBDT said that demand falling within the prescribed limits, even if eligible for withdrawal, will not be extinguished if raised against entities required to deduct or collect tax at source under the Income-tax provisions related to TDS or TCS.