An EMI scheme ( installments ) for India’s ‘deserving’ taxpayers. What does the taxman do when the money market dries up and businesses struggle? It tries to figure out a way to inch towards a punishing tax target that the government has set by giving a little breathing space to companies and businesses — the prime taxpayers.
Mumbai, which accounts for the highest contribution to income tax in the country, is trying it out.
Amid tight liquidity and a tough business environment, tax commissioners in the financial capital decided on Monday to allow “deserving” assesses pay in installments the amount they are required to fork out after challenging a tax demand order.
After receiving a demand order from the assessing officer of the Income Tax (I-T) department, a tax payer has to pay 20% of the demand within a month once the order is challenged before the Commissioner of Income Tax (Appeals), the first appellate authority. This amount can now be paid in multiple installments till end March.
“However, this will be on a case to case basis and is not part of any rule. Instructions have gone out to commissioners in Mumbai to consider genuine requests from assesses so that don’t have to pay the entire 20% at one go. The payments can happen in three or five or six installments, depending on the case.”
The tax demands pertain to assessment year 2017-18 (or, the financial year 2016-17 when the Narendra Modi government demonetised all Rs 500 and 1000 rupee currency notes). A flurry of notices, raising tax demand, were issued by the I-T department before December 31, 2019 when assessments for FY 2016-17 became time-barred. The department questioned the authenticity of deals that resulted in surge in cash deposits with banks following demonetisation of currency bills.
“This is a small relief given liquidity positions of assesses. No revenue is being sacrificed,” said the official. While tax officials said this might not have been the first time that payments in installments were permitted, tax professionals felt that the department appeared a little considerate this year — probably due to a sluggish growth in demand.
The 20% payment rule on challenging a tax order is in accordance with the guideline of the Central Board of Direct Taxes and not part of a statute. While the ruling on the appeal before the Commissioner of IT (CIT) Appeals may take a long time to come, the 20% payment has to happen soon after a month.
“Assesses may try to buy some time by first writing to the assessing officer (AO). Once the AO rejects the application, which typically happens immediately, the assessee can move the principal commissioner followed by the chief commissioner. Normally, if an application is pending before a higher authority, the lower authority will take any action. But such applications within the tax administration may help the taxpayer delay the 20% payment by only a few weeks. While some feel that the department may be offering an installment mechanism to save time, I feel it is primarily driven by the present business climate,” said a tax practitioner.