Income Tax Demand Waiver of Rs. 1 Lakh: Know More

The Central Board of Direct Taxes (CBDT) has set a maximum ceiling limit of Rs.1 lakh for waiving eligible income tax demands.

However, in an order dated February 13, 2024, CBDT stated that future interest will not be used in the computation of the total amount of income tax demand.

CBDT stated in the order, “Consequent to the aforesaid remission and extinguishment of entries of outstanding demand, there shall not be a 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 related 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 Rs 1,00,000.”

How can the total income tax demand waiver be higher than Rupees One Lakh?

According to income tax provisions, if demand is not paid within 30 days of raising it, interest at 1% per month is charged for the duration of delay under section 220.

If this sum is used to calculate the overall tax demand, many people may be ineligible for the waiver. However, some tax professionals believe that CBDT should provide more clarification on the calculation of interest.

“CBDT has confirmed that no interest will be calculated for nonpayment of tax demand. However, if a tax demand has already been raised, including accrued interest, it is doubtful that it will be waived if it exceeds the Rs.1 lakh umbrella limit,” says a tax professional.

While the aggregate waiver limit is Rs.1 lakh per taxpayer, the maximum waiver limit per tax demand until the financial year 2010-11 is only Rs. 25,000.

When will interest be included under the Rs.1 lakh umbrella limit?

According to tax professionals, if the CPC can distinguish between tax demand and interest on tax demand, just the interest component will be excluded from the Rs.1 lakh limit. If it cannot be separated, the total tax demand, including interest, would be counted against the Rs.1 lakh limit.

“The CPC will only evaluate the original demand entry from their records. Typically, it excludes the interest under Section 220(2), which is calculated separately. However, if the initial demand entry includes such interest, it will be included in the eligibility calculation based on the Rs.1 lakh threshold. This is primarily due to the CPC’s lack of information to separate the original demand into basic demand and interest. The system will determine eligibility for the waiver based on the total demand uploaded.” says a tax professional.