The finance minister has introduced a one-of-a-kind initiative geared towards reducing litigation. This move addresses persistent concerns tied to old unresolved, non-reconciled, or disputed direct tax demands, reaching as far back as 1962. In the recent past, several individuals were slapped with notices from the income tax (I-T) department asking them to cough up old tax demands going back more than 15 years.
While the department’s records show the demands as ‘unpaid’, taxpayers who received the notices are confident that no such is outstanding with the tax office. Many are clueless about how to go about handling the notices as the old payment challans and rectification orders, which can serve as proof of tax payment, have been misplaced.Many errors were a consequence of the department migrating to a new online system for tax management.
Non-adversarial tax policy
Compounding the challenge was the fact that the tax department justified its demands, saying if the system throws up cases where taxes are due, the department will collect taxes or adjust them with the refunds even though it admitted there could be cases where taxes were paid but the details have not been updated or entered into the system.
Notification to follow
It is expected that the department will issue notification or clarifications to shed light on the withdrawal process and whether taxpayers will have the option to accept the withdrawal or continue litigation at their discretion.
Whether the scope of withdrawalit is for individuals only or includes partnership firms and other corporations is not clear. In cases of litigated tax demands, a question arises: Will only department-contested demands be withdrawn, or will demands contested by taxpayers also be considered? Taxpayers’ right to contest demands could involve challenging tax calculations, disputing interpretations of tax laws, or presenting additional evidence and this right cannot be denied through withdrawal.
Furthermore, the withdrawal does not guarantee immediate refunds for taxpayers. The limits of `25,000 for tax demand up to FY 2009-10 and `10,000 for FY 2010-11 to 2014-15 apply to the total demand outstanding in a fiscal year. If a taxpayer has tax demands within these limits for multiple years, all outstanding demands within those limits should be withdrawn. Refunds may be processed where old tax demands are adjusted against outstanding refunds. However, if no refund was due for subsequent years, no additional refund will be available.
Taxpayers can ascertain if this move applies to them by examining their income tax profile for outstanding tax demands. If the outstanding demand falls within the provided limits, the tax demand should be withdrawn, providing a straightforward measure for taxpayers to assess their eligibility.
The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma.