Interim Budget withdraws certain small, disputed direct tax demands

No change in tax slabs, deductions, or exemptions announced

The Interim Budget on Thursday proposed to withdraw the disputed direct tax demands of small amounts that have been pending for decades, a decision that is expected to help 10 million taxpayers.

“Many such demands go back to 1962. They continue to remain on the books, causing anxiety to honest taxpayers, and hindering refunds of subsequent years,” said Finance Minister Nirmala Sitharaman in her Budget speech.

The FM proposed to withdraw outstanding direct tax demands of up to Rs 25,000 for the period up to FY10 and up to Rs 10,000 for FY11 to FY15.

In an answer to a query by a Business Standard journalist at the post-Budget press conference, Sanjay Malhotra, revenue secretary, quantified the revenue the government will forgo due to this measure: “The total number of small tax demands is about 2.68 crore. Of these, 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 FY 2009-10, and another 53 lakh are for FY 2010-11 to FY 2014-15.  Altogether, there are 1.1 crore small demands with a total amount of less than Rs 3,500 crore.”

According to Cyril Shroff, managing partner, Cyril Amarchand Mangaldas, “The withdrawal of older disputed tax demands affords clarity to the taxpayer. These procedural changes will streamline the tax regime and have a multiplier impact.”

Stressful for senior citizens

At the beginning of this financial year, the tax department had taken steps to address unresolved tax issues by sending notices to taxpayers regarding outstanding demands.

“These demands, though minor in monetary value, dated back over 10 years, and affected a considerable number of taxpayers,” said Ankit Jain, partner at Ved Jain & Associates.

The age of these demands posed a unique challenge. With time, many records and pieces of evidence, which could have facilitated their resolution, had been erased. “These demands became a source of considerable anxiety and stress, particularly for senior citizens, who found themselves ill-equipped to handle them,” added Jain.

For the government, too, the resources expended on collecting these demands exceeded the revenue earned.

Types of demands

Small tax demands get generated due to a variety of reasons.

“These could be in the calculation of interest dues, advance tax payments, TDS (Tax Deducted at Source) payments, self-assessment taxes. Variations could arise due to differences in rates, number of days, some error in picking a number, even error of judgement in allowing or disallowing expenses. In other words, there could be differences in the approach followed by the assessee and the department,” said Ritika Nayyar, partner, Singhania & Co.  

Naveen Wadhwa, vice-president, research and advisory, Taxmann, informed that the proposal pertains not only to income-tax demands but also to demands related to wealth tax, gift tax, estate duty, and banking cash transaction tax.

Relief for taxpayers

This measure will spell relief for many. “It will clean up the government’s books and also prevent unnecessary harassment to the taxpayer caused due to having to justify old demands,” said Jain.

Added Nayyar: “It should facilitate the quick processing of refunds in subsequent years. Litigation for tax demands at any level of authority involves costs and effort in terms of time and money for taxpayers, not to mention inconvenience and harassment.”

Contact relevant tax official

Further details on this measure are awaited. “Once the official notification is issued, taxpayers should reach out to the concerned jurisdictional officers through their representatives to pursue withdrawal of such cases,” said Rishab J, advocate, Shivadass & Shivadass Law Chambers.

No changes in tax rates

The FM left tax rates, exemptions and deductions unchanged. According to Jain, this will disappoint the middle class, which was expecting some tax relief.

Maneet Pal Singh, partner at IP Pasricha & Co, however, views the consequent predictability in the tax regime as a positive.

“It suggests a likelihood that the subsequent government may similarly maintain a status quo in the final budgetary framework,” he added.