Withdrawal of Outstanding Tax Demands (Proposed In Union Budget 2024-25)

Vipul B. Joshi, Advocate

I. BUDGET SPEECH OF HON’BLE FINANCE MINISTER

“Tax proposals.

92. ……….

93. Moreover, in line with our Government’s vision to improve ease of living and ease of doing business, I wish to make an announcement to improve tax payer services. 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 twenty-five thousand rupees (₹ 25,000) pertaining to the period up to financial year 2009-10 and up to ten-thousand rupees (₹ 10,000) for financial years 2010-11 to 2014-15. This is expected to benefit about a crore tax-payers.”

II. THE FINANCE BILL, 2024

No proposal to amend Income-tax Act, 1961 or for any new enactment / provision / scheme in the Bill.

III. EXCERPTS OF RESPONSE OF REVENUE SECRETARY

{AT PRESS CONFERENCES / MEDIA INTERACTIONS}

  1. There are a large number of tax demands which are pending, numbering to around 2.68 crore demands, amounting to a total of ₹ 35 lakh crores. Out of these 2.68 crores tax demands, about 2.1 crore demands are valued at less than Rs 25,000/-. Of these 2.1 crore demands, about 58 lakh demand entries are for the period pertaining up to F.Y. 2009 – 10 and another 53 lakhs are for the periods from F.Y. 2010 – 11 to F.Y. 2014-15. So, the total amount remitted is less than ₹ 3,500 crores that will be foregone by the Department.
  2. Many of these demands are very old, dating from 1962 when the Income – tax Act, 1961 was enacted and right now till very recently, till today. Many of them are unreconciled because of systemic issues. Prior to 2010, records of the Income – Tax Department were maintained at zonal levels or state levels, which were mostly paper records. If they were computerized, they were held locally. There was no central level record. The issue of a mismatch in records of tax demands and payments made by the tax – payers arose after the Income Tax Department switched to the centralized system of records at the Centralised Processing Centre (CPC) at Bengaluru in 2010. As Withdrawal of Outstanding Tax Demands (Proposed In Union Budget 2024-25) such, the Department is unable to verify many of the demands, causing disruption and hindrance in payment of refunds. Due to this the cut – off date for waiver of the small tax demands has been taken as F.Y. 2010 – 11.
  3. In the year 2010-11, the Income – Tax Department shifted the system centrally to Centralised Processing Centre in Bengaluru. Many of the demands which are over there have been paid actually by the taxpayers. This is because when the Department reaches out to the taxpayers regarding the outstanding demand, the response is that they have already paid it. However, it is not possible to verify as these records were decentralized and, therefore, are not with the Department. Thus, it appears that mostly these demands are actually not existing and are existing on paper and, therefore, are mostly fictitious. These demands are not going to yield any revenue. Some of them are very small, say, Rs 1, 2 or less than ₹ 10.
  4. It’s not a waiver…it’s just a withdrawal, it’s just a correction of entries.

IV. ORDER OF CBDT

In view of the proposal [‘the scheme’], Central Board of Direct Taxes [‘CBDT’] has issued Order on 13.02.2024 [‘the Order’], which is reproduced hereunder for ready reference:

F. No. 375/02/2023-IT-Budget
Government of India,
Ministry of Finance
(Central Board of Direct Taxes)

ORDER

New Delhi, 13th February, 2024

1.  Consequent upon the Finance Minister’s budget speech vide para 93 under the heading “Tax Proposals” during Union Budget 2024-25 dated February 01, 2024 and with concurrence of the Department of Expenditure accorded on file of even number vide note dated February 09, 2024, sanction of the Competent Authority in terms of Rule 18 of General Financial Rules, 2017 (GFRs) is hereby accorded to remit and extinguish the following claims to revenue, being tax demands under Income-tax Act, 1961 or Wealth- tax Act, 1957 or Gift-tax Act, 1958 (hereinafter referred as, ‘Acts’) which are outstanding as on January 31, 2024 (as indicated in column 2 below) with effect from the date on which such demands were created/ raised/ modified pertaining to the Assessment Years (as indicated in column 1 below) in respect of taxpayers/ assessees :-

Assessment Year/s (A.Y.) to which the entries of outstanding tax demands as on January 31,2024 pertain Monetary limit of entries of outstanding tax demands whichare to be remitted and extinguished (in Rupees)
(1) (2)
Upto A.Y. 2010-11 each demand entry upto ₹ 25,000/-
A.Y. 2011-12 toA.Y. 2015-16 each demand entry upto ₹ 10,000/-

The remission and extinguishment of above outstanding tax demand shall be subject to the maximum ceiling of ₹ 1,00,000/- (Rupees one Withdrawal of Outstanding Tax Demands (Proposed In Union Budget 2024-25) lakh) for any specific taxpayer/ assessee for the following types of demand entries:- </em >

  1. Principal component of tax demand under the Income-tax Act, 1961 or corresponding provisions of Wealth-tax Act, 1957 or Gift-tax Act, 1958;
  2. Interest, penalty, fee, cess or surcharge under various provisions of the Income-tax Act, 1961 or corresponding provisions, if any, of Wealth-tax Act, 1957 or Gift-tax Act, 1958.

1.2  The above remission and extinguishment of entries of outstanding direct tax demands shall not be applicable on the demands raised against the tax deductors or tax collectors under TDS or TCS provisions of the Income-tax Act. 1961.

2.  Consequent to the aforesaid remission and extinguishment of entries of outstanding demand, there shall not be requirement of calculation of interest on account of delay in payment of demand under sub-section (2) of section 220 of the Income-tax Act, 1961 or corresponding provisions of Wealth-tax Act, 1957 and Gift-tax Act, 1958 and therefore, the same shall not be considered for the purpose of determining the ceiling of ₹ 1,00,000/- (Rupees one lakh).

3.  If any tax liability arises against such a taxpayer/ assessee, as a result of application of sub-clause (xviii) of sub- section (24) of section 2 of the Income- tax Act, 1961, the same shall also be remitted and extinguished.

4. The above remission and extinguishment of entries of outstanding demand shall be carried out in respect of each demand entry falling within monetary limit as specified at para-1 above starting from the earliest assessment year to subsequent assessment year(s), subject to the condition that aggregate value of such demand entries shall not exceed the maximum ceiling of ₹ 1,00,000/- (Rupees one lakh) for any specific taxpayer/ assessee

4.2 Further, in order to compute the aforesaid maximum ceiling of ₹ 1,00,000/- (Rupees one lakh), any demand entry having value more than the aforesaid monetary limits as specified in para-1 above shall not be taken into calculation.

4.3 Under no circumstance, fraction of any demand entry, whether its value is falling within the monetary limit as specified in para-1 above or not, shall be considered for remission and extinguishment to compute the aforesaid maximum ceiling of ₹ 1,00,000/- (Rupees one lakh).

5. The aforementioned remission and extinguishment of entries of outstanding demand shall not:-

  1. confer any right to claim credit of any of the remitted and extinguished demand by the taxpayer/assessee under Income- tax Act, 1961 or Wealth-tax Act, 1957 or Gift-tax Act, 1958 or any other law, where such benefit of remission and extinguishment has been allowed to such taxpayer/assessee, or
  2. confer any right to claim refund of any sum by any taxpayer/ assessee under Income-tax Act, 1961 or Wealth-tax Act, 1957 or Gift-tax Act, 1958 or any other law, or
  3. have any effect on any criminal proceeding/s pending/ initiated or contemplated against the taxpayer/assessee under any Act or law and shall not be construed as conferring any benefit, concession or immunity to the taxpayer/assessee in any such proceedings under any Act or law other than as specifically provided in this order, where such benefit of remission and extinguishment has been allowed to such taxpayer/assessee.

6.  As per the provisions of Rule 19(1) of General Financial Rules, 2017, the above remission and extinguishment of entries of outstanding tax demand under the aforesaid ‘Acts’ shall not have the requirement of audit.

7.1 This order shall be implemented by the Directorate of Income-tax (Systems)/ Centralized Processing Centre, Bengaluru (CPC), preferably within two months.

7.2 Rectification of any apparent mistake related to the implementation of this order, which may come to the notice shall be carried out by the CPC, Bengaluru and such rectification shall be considered to be the execution of this order.

8. The Central Board of Direct Taxes (CBDT)/Member (In-charge of Systems and Faceless Scheme), CBDT shall issue directions/ clarifications for any incidental actions required for proper implementation of this order.

(Sunil Kumar)

Under Secretary to the Government of India

V. DEPARTMENT’S WEBSITE

In the News & e – Campaigns section of the website of the Income Tax Department, it is being brought to the notice of the taxpayers that eligible outstanding direct tax demands have been remitted and extinguished. This bulletin reads as under: “19-Feb-2024

Remission and Extinguishment of Demands

Eligible outstanding direct tax demands have been remitted and extinguished. Please log into your account and follow the path Pending Action > Response to Outstanding Demand to check the status of ‘Extinguished Demands’ in your case. In case of queries/ concerns, please call 1800 309 0130 or write an email to [email protected] (mailto:[email protected]) so that your concerns can be addressed.”

Vi. SOME ISSUES FOR CONSIDERATION

Certain issues for consideration still do arise that require clarification, some of which are raised hereunder. Though the response to each of the issues is attempted, being a beneficial scheme, ultimately it is the prerogative of the Government to cover such issues and, if yes, how. Towards this, necessary clarification by way of issuance of Direction/ Clarification / Instruction / Memorandum / FAQs, etc. may be in offing, as also indicated at para 8 of the Order. Therefore, the ensued response is subject to such clarifications. Some responses are incorporated just for clarification purpose.

VII. SOME ISSUES FOR CONSIDERATION

  1. Whether any amendment about the withdrawal of the demands is proposed in the Income-tax Act, 1961? The withdrawal proposed in the Budget does not find any place in the Finance Bill, 2024. In other words, no change / amendment is proposed in the Act. However, pursuant to the proposal, Order dated 13.02.2024 is issued by the CBDT, as reproduced above. Further clarifications are not ruled out, as mentioned at para 8 of the Order.
  2. Eligibility vis-a-vis Legal and/or Residential StatusThe words used by Hon’ble Finance Minister were “honest tax payers”. However, the Order does not make any distinction and appears to be applicable to each, all and any type of taxpayer/ assessee. As such, the withdrawal of such outstanding demands is intended to cover all assessees, irrespective of their legal and/or residential status or, for that matter, their honesty level!
  3. Demands only under Income – tax Act covered?The scheme covers tax demands under Income – tax Act, 1961, Wealth – tax Act, 1957 and Gift – tax Act, 1958 as clarified by the Order. It does not cover the demands pertaining to Estate Duty, Banking Cash Transaction Tax, Fringe Benefits Tax, etc. The rationale for such exclusion is not understandable. It also does not cover the demands raised against the tax deductors or tax collectors under TDS or TCS provisions of the Income – tax Act, 1961.
  4. Which demands are covered by the scheme?Whether it is applicable to the cases where the demand pertains only to penalties?

    It appears that the scheme covers not only tax demand as technically understood, but also the demands pertaining to interest, penalty, fee, cess or surcharge under the three enactments mentioned above. Each of the demands are waivable on a standalone basis, irrespective of status of other demands. As such, a demand that pertains only to a penalty is waivable irrespective of the position with respect to the demand, if any, pertaining to the corresponding quantum (assessment) proceeding.

  5. Applicability of section 2 (24) (xviii)As per Para 3 of the Order, any tax that may be arise on the income in the nature as referred in section 2(24)(xviii) of the Act that may leviable in the hands of the concerned taxpayer on account of the waiver of this demand under this Scheme shall also stand remitted and extinguished.

    For ready reference, the provision of section 2 (24) (xviii) is reproduced as under:

    “(xviii) 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 a State Government or any authority or body or agency in cash or kind to the assessee other than,—

    1. the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or
    2. the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be;” Thus, the Order intends to convey that the remission and extinguishment of the tax demands under the Scheme will amount to waiver or concession by the Central Government in cash or kind to the assessee within the meaning of section 2(24)(xviii) of the Act. This means that the amount of tax waived under the Scheme will become the amount of income taxable in the hands of the taxpayer by operation of this provision. The Order does not stop taxability of such income as well as levy of tax on such income in the hands of the concerned taxpayer. It only seeks to remit and extinguish such tax as will be payable by the concerned taxpayer. It is not clear whether tax demand would be raised first on such assessee, which will be remitted and extinguished thereafter or the Department will not raise any formal tax demand at all.
  6. What types of demands are covered under the Scheme?The Hon’ble Finance Minister in her speech used the phrases “non-verified”, “non-reconciled” or “disputed” direct tax demands. Though these words are not clear or clarified, the Order does not use any such phrases and does put any such qualifications. As such, it appears that the idea seems to withdraw all demands up to ₹ 25,000 each for the period up to Assessment Year 2010 – 11 and up to ₹ 10,000 each for Assessment Years 2011-12 to 2015-16, irrespective of any other circumstance – whether unverifiable / unreconcilable / disputed or not. This also means that an entry against an outstanding demand, like ‘Not Collectible’ or otherwise will also not matter. It appears that, ultimately, what appears under the tab ‘Response to Outstanding Demand’ of the e – filing portal of the taxpayers / assessees will be the final arbiter. This is because, as it appears, the Department has already tagged the demands that are waived under the scheme as ‘EXTINGUISHED DEMAND’ under this tab.

    Such demands should be outstanding as on 31.01.2024.

  7. Relevance of the demand being earlier disputed or contested. Is it necessary that the demand was contested or disputed by the assessee at any stage or before any authority?

    No, it does not appear to be so. Though the Hon’ble Finance Minister in her speech had qualified the term tax demand with the word “disputed”, the Order does not even refer such term. As such, it doesn’t matter whether the demand and / or the amount of demand is under dispute – either by the assessee or by the Department. At the same time, just because the concerned taxpayer and / or the Department is disputing such demand, the relief of the waiver shall not be denied only on that ground. It may happen that such dispute is ultimately settled entirely in favour of the concerned taxpayer, thereby wiping out the entire tax demand ab intio, which may include the demand waived under the present scheme.

  8. The cut off of ₹ 25,000 / 10,000 applies to tax or tax plus interest? This is a grey area. Normally, “tax” does not include “interest” thereon.

    Take for example a case of an assessee where his balance pure tax demand for a particular year outstanding as on 31.01.2024 is only Rs 10,000. However, the original demand was very high, say running into lacs of rupees, which remained unpaid till say, August 2023, in which month the entire demand except ₹ 10,000 was paid/ adjusted/ recovered. Now, as on 31.01.2024, the interest thereon may run into lacs of rupees, though the pure outstanding tax element may be only ₹ 10,000/-.

    The budget speech of the Hon’ble Finance Minister did not clarify whether the tax demand limit of ₹ 25,000 / 10,000 includes interest portion as well. Even the Order does not bring full clarity on this aspect, except for mentioning ‘interest’ as a distinct type of ‘tax demand entry’ that is eligible for the waiver.

    One clue may be the use of the phrase ‘principal component of tax demand…’ at para 1 of the Order, though in the context of the ceiling of ₹ 1 lac. This phrase is neither defined in the Act nor clarified in the Order. One view will be that this phrase indicates pure tax demand, sans interest or other levies. Further clue is the mention in the beginning of the same para to the effect that “….. to remit and extinguish …. being tax demands ……. which are outstanding as on 31st January, 2024  ….. with effect from the date on which such demands were created /raised / modified.…”, thereby apparently seeking to be give retrospective effect to the waiver. This may mean that from the very date on which the demand (of ₹ 10,000/- in the present example) was created or raised or even modified (from August 2023 in the example), the demand would deem to have never existed. Logically, all consequential levies in the form of interest / penalty related to such demand may also cease to exit too. One more clue is the provision for applying the benefit of the scheme to the tax demands pertaining to interest, penalty, fee, cess and surcharge – on a standalone basis – as referred in para 1. Lastly, the contents of para 2 of the Order, though relates only to the interest u/s 220 (2) of the Act but indicting that such interest will not be  considered for the purpose of determining the ceiling of ₹ 1,00,000/-. This may also offer some clue, as it tends to indicate that such the tax demand entry will be the demand inclusive of at least the interest u/s 234A, 234B and 234C of the Act. This appears to be in consonance with the way the ‘Outstanding Demand Amount’ as reflected in the portal, where the demand with respect to the interest u/s 220 (2) is separately computed and shown. </em >

    The confusion requires urgent clarification.

  9. What about consequential proceedings?As discussed above, the demand, rather the amount of the demand, as outstanding as on 31.01.2024 will deem to have been extinguished right from the date on which suchdemand was created or raised or modified. All automatic and logical consequences should accordingly follow. Therefore, it appears that the consequential levies computed on the basis of suchtax demand against the taxpayer need not continue / need not be calculated. The contents of para 2 of the Order tends to support this view.

    However, and at the same time, due note of para 6 (iii) needs to be taken, wherein it is clarified that conferment of the benefit of waiver under the scheme will not affect any criminal proceeding – whether pending or to be initiated. It is clarified further that the benefit of waiver of a tax demand granted under the scheme will not confer any benefit, concession or immunity to the concerned taxpayer, other than specifically provided under the scheme. It appears, in terms of para 2 of the Order, that the only concession given is with respect to the interest chargeable on such tax demand u/s 220 (2) of the Act.

    This aspect also requires clarification.

    Withdrawal of Outstanding Tax Demands (Proposed In Union Budget 2024-25)

  10. Whether the limit of ₹ 25,000/ 10,000 applies to total tax demand for that year or the outstanding demand as on 31.012024 for that year? It appears that the scheme will apply to what is now left to be payable as per the records (entries) of the Department, that is, shown as outstanding demand, as on 31.01.2024, irrespective of the amount of the original demand.
  11. What if the demand outstanding is more than ₹ 25,000/ 10,000? Does the scheme allow relief of withdrawal only if the demand outstanding is less than ₹ 25,000 / 10,000, as the case may be, or does it withdraw demand up to ₹ 25,000 / 10,000 where the demand outstanding is higher than ₹ 25,000 / 10,000, as the case may be?

    If one goes by the spirit and the intent of the scheme, it appears that the scheme will apply only if each demand is less than the threshold limit. The Order tends to support this view. It uses the words ‘Monetary limit of each outstanding demand entry’. Reference can be made also of para 4.2 of the Order. As such, if a demand entry is more than such threshold limit, it gets excluded out rightly and entirely.

  12. The threshold limit qua each A.Y. or qua the entire period? Whether the threshold limit of ₹ 25,000 / 10,000 applies qua each assessment year falling within either of the two periods or it applies qua the entire each period covered?

    As it appears from the Order, the waiver applies to ‘each demand entry’ {Refer, for example, para 4}. This means not only qua each year but even for a particular year it applies qua each demand entry relating to different and distinct orders /matters, if raised through separate demand notices and generating separate demand entries, like quantum and penalty, fees, etc. What one may infer from this is that as long as an individual demand entry amount is limited to Rs 25,000 / 10,000, the taxpayer can have full waiver, even if he may have more than one such demand entry for that year or for other year/s.

  13. The Upper LimitIn the Order, it is clarified that the total amount that will be available for the benefit under the scheme per taxpayer will not exceed Rs 1 lakh, which is described as maximum ceiling. Para 4.3 further clarifies that for this purpose, fraction of any such demand shall not be considered.
  14. Refunds already adjustedWhat about the refunds which have been already adjusted against such earlier outstanding demands? What about the demands exceeding ₹ 25,000/ ₹ 10,000 which have been part paid / adjusted against refund and the existing outstanding demand is less than ₹ 25,000/ 10,000 in the records of the Revenue?
    1. Are they to be released in favour of the assessee?
    2. If so, will the issue of refunds be automatic or upon application?
    3. In any case, will it also provide for any interest on the same?

    It appears that what is sought to be covered simply is a tax demand entry which is up to ₹ 25,000/10,000 as on 31.01.2024, nothing more and nothing less. As such, at the outset, there should exist such an outstanding demand which is live as on 31.01.2024. Consequently, if there is no such live demand remaining in existence as on 31.01.2024 on account of, say, it was fully paid / adjusted / recovery before that date, the scheme does not apply at all to such a case and, consequently, the question of refunding such amount adjusted does not arise. Further, for this, it is irrelevant what was the original demand and whether and how it came to be reduced to the amount that has fallen below the threshold limit as on 31.01.2024 – whether by way of payment or recovery or adjustment of refund/s due to the assessee. Corollary to this, what is sought to be waived is only such amount of demand that has remained outstanding as on 31.01.2024 in the entry of the Department, nothing more and nothing less. Consequently, the question of refunding any amount that stood already adjusted earlier may not arise at all. Para 6 (ii) of the Order tends to clarify this.

  15. Any Other Benefit?Para 6 (i) of the Order clarifies that the benefit of the remission / extinguishment once conferred under scheme shall not confer any right to claim credit of such amount under the respective enactment or under any other law.
  16. Whether this proposal will lead to withdrawal or waiver of demand? The words used by Hon’ble Finance Minister were “propose to withdraw” and not “propose to waive”. The words used in the Order are ‘remission’ / extinguishment’. As such, it appears that it will be more in the nature of cancellation / writing off of such demands; especially when prior sanction of the Competent Authority in terms of Rule 18 of General Financial Rules 2017 [‘GFRs] is accorded.
  17. Whether withdrawal is automatic or conditional? Is the withdrawal automatic or does it require an application in such regard?

    There is no clarity about this. Though logically, there can be some correspondence with the concerned taxpayer, it is unlikely that there would be any condition attached to it.

    However, on the basis of the Order and the website notice – as referred above – it appears that it is automatic. The scheme is going to be implemented by the Directorate of Income-tax (Systems) / Centralised Processing Centre, Bangaluru [‘CPC’]. Though the CPC has been given the mandate to implement the scheme within two months, it is learnt that the Income Tax Department has already started cancelling, suo motu, the outstanding demands pertaining to such earlier years under the head “Extinguished Demand”.

    However, nothing may prevent a taxpayer to draw attention of the Department to the correct amount of outstanding demand as on 31.01.2024 and, consequently, to seek modification / correction of the demand entry in the Department’s records accordingly. The last part of the announcement on the Department’s website as well para 7.2 of the Order support this view.

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