A notice for demand under Section 156 of the Income Tax Act is a formal letter sent by the income tax department to a taxpayer. It is issued when the department believes that the taxpayer owes money in taxes. The notice informs the taxpayer about the amount they need to pay and provides details on how to do so. Essentially, it’s a request for payment of taxes that are due.
Notices for amounts due under sections 143(1), 200A(1), or 206CB(1) are also considered demand notices under Section 156.
You are expected to pay the amount stated in the notice within 30 days of receiving it.
However, if the A.O. believes that allowing you the full 30 days could harm the interests of the income tax department, they can require you to pay in less than 30 days. This can only happen with prior approval from the Joint Commissioner of Income Tax (JCIT).
How Should a Taxpayer Respond to an Outstanding Demand Notice?
If you receive an outstanding income tax demand notice, you have four options to respond:
- The demand is correct.
- The demand is partially correct.
- I disagree with the demand.
- The demand is not correct, but I agree to an adjustment.
To respond effectively, follow these steps:
- Review the Notice: Carefully read the notice to understand the details of the amount owed and evaluate the demand’s validity.
- Choose Your Response: Based on your assessment, select one of the options listed above that best fits your situation.
Steps to Submit Your Response:
- Log in: Access the income tax e-filing portal using your user ID and password.
- Find the Right Section: Navigate to Pending Actions and select Response to Outstanding Tax Demand.
- Submit Your Response: Click on Submit Response to finalize your choice.
Make sure to provide any necessary details or documents to support your response if required.
When the Demand Is Correct
If you confirm that the demand is accurate and you agree to pay it, follow these steps:
- Pay Now: Click on the “Pay Now” option to make the payment directly.
- Submit Response: Choose the “Submit Response” option if you want to attach any additional comments or documents.
After clicking “Submit Response,” select “Demand is Correct” to indicate your agreement with the demand from the Centralized Processing Center (CPC), and then click on “Pay Now.”
If you have already made the payment, you can provide the challan details to confirm the payment.
Disagreeing with the Demand (Wholly or Partially)
If you disagree with the demand, either completely or partially, follow these steps:
- Select Your Reason: Choose the appropriate reason for your disagreement.
- Enter Challan Details: Provide the necessary challan information, which may include Type of Payment, Challan Amount, BSR Code, Serial Number, Date of Payment and Optional remarks.
- Check Outstanding Amount: Review the outstanding amount and click Submit.
After submitting, you will receive a confirmation that your response has been submitted. If your response is accepted by the Centralized Processing Center (CPC), you will get an order stating that the demand is “nil” or “0.”
Steps to Respond Using Different Options
If You Click “Demand Is Correct”
If you agree with the demand, select the “Demand is Correct” option. Keep in mind the disclaimer: “Once you submit the response as ‘Demand is correct,’ you cannot disagree with the demand later.”
- Choose the Not Paid Yet option and click Pay Now. This will redirect you to the e-Pay Tax page where you can complete your payment. After a successful payment, you will see a success message along with a Transaction ID, which you should save for future reference.
- If you have already paid the demand, select Yes, Already Paid and click on Add Challan Details.
To add your challan details:
- Select the Type of Payment (minor head).
- Enter the Challan Amount.
- Provide the BSR Code and Serial Number.
- Choose the Date of Payment.
- You can add remarks if needed (optional).
- Upload a copy of the challan in PDF format by clicking on Attachment.
Note:
- Each attachment can be a maximum of 5 MB.
- If you have multiple documents, combine them into a zipped folder. The total size of all attachments in a zipped folder should not exceed 50 MB.
After entering the challan details, click Submit to finalize your response and the details you provided.
Upon successful validation, a success message will appear along with a Transaction ID. Remember to keep a note of the Transaction ID for future reference.
Disagreeing with the Demand (Partially or Fully)
If you wish to disagree with the demand, either completely or in part, follow these steps:
Select Your Response: On the “Response to Outstanding Amount” page, choose the option that says “Disagree with the Demand (Either in Full or in Part).” Then, click Add Reasons.
Choose Your Reasons
Select the reason(s) for your disagreement from the available options, and then click Apply.
You can choose one or more reasons from the list below:
- Demand has already been paid: If applicable, select this option and provide the Challan Identification Number (CIN), BSR code, date of payment, serial number of the challan, and the amount.
- Demand has been reduced by rectification/revision: Provide the date of the order, the new demand amount after rectification, and details of the Assessing Officer (AO).
- Demand has been reduced by appellate order: If the appeal effect is pending, provide the date of the order, details of the appellate authority, and the reference number of the order.
- An appeal has been filed: Indicate the status of the appeal, whether a stay petition was filed, if a stay has been granted, or if installment facilities were approved.
- Rectification/revised return has been filed at CPC: If you choose this reason, include additional information related to the revised return.
- Rectification has been filed with the Assessing Officer: Mention the date of your application and any comments you have.
- Others: If your reason doesn’t fit into the above categories, select this option and provide your comments.
Enter Details: After selecting the appropriate reasons, enter the necessary details for each reason listed on the “Response to Outstanding Amount” page.
Make Payment (if needed): If required, you will be redirected to the e-Pay Tax page to make the tax payment. After completing the payment, you will return to the “Response to Outstanding Amount” page.
Submit Your Response: Click Submit to finalize your response, and then confirm your submission.
After a successful submission, you will see a success message along with a Transaction ID. Make sure to keep a note of this Transaction ID for your records.
Once submitted, you will receive confirmation regarding your outstanding demand response.
Time Limit to Respond to the Demand
Taxpayers must pay the amount specified in the demand notice within 30 days from the date they receive it. In exceptional cases, the Assessing Officer (A.O.) may shorten this 30-day period, but only with prior approval from the Joint Commissioner.
If a taxpayer needs more time to pay or wishes to request payment in installments, they can apply to the A.O. for an extension, but this request must be made before the initial 30 days expire.
Consequences of Delay / Penalty for Delay
- Interest under Section 220(2): If the payment is delayed beyond 30 days, interest will accrue at a rate of 1% per month (or part of a month). This interest is due even if the A.O. has approved an extension or allowed installment payments.
- Penalty under Section 221: The A.O. may impose a penalty that can be up to the total amount demanded in the income tax notice. However, the taxpayer must be given a reasonable opportunity to explain their situation. No penalty will be charged if the taxpayer can demonstrate that the delay was due to good and sufficient reasons.
Importance of Timely Response
Receiving a Section 156 notice is an important part of complying with income tax regulations. Responding accurately and on time can help avoid extra financial burdens and legal issues. By understanding the response process and acting promptly, taxpayers can minimize the risk of such notices and ensure a smoother tax experience.
If you encounter difficulties understanding or responding to an Income Tax Notice under Section 156, it’s highly advisable to consult with a qualified tax practitioner. Tax laws can be complex and subject to frequent changes, so seeking professional guidance ensures you handle the notice correctly and avoid potential penalties. A tax expert can help interpret the notice, assess your tax liability, and provide clear steps for resolution. Additionally, staying in touch with a tax practitioner will help you remain up-to-date with the latest tax regulations and ensure you’re compliant with any new legal developments.
Frequently Asked Questions (FAQs) on Section 156 of the Income Tax Act
What is a Section 156 notice under the Income Tax Act, 1961?
A Section 156 notice is a formal demand issued by the Assessing Officer (A.O.) for payment of taxes, interest, penalties, fines, or other amounts owed by you, based on an order under the Income Tax Act.
What types of amounts can be included in a Section 156 notice?
The notice can cover various dues, including:
- Income Tax: The main tax amount due for a specific assessment year.
- Interest: Interest charges for late filing of returns (Section 234A), late payment of advance tax (Section 234B), and deferred payments (Section 234C).
- Penalties: Fines for failing to file returns or for hiding income.
- Fines: Any fines imposed by tax authorities.
- Dividend Distribution Tax (DDT): Tax on dividends paid by domestic companies to shareholders.
- Tax on Mutual Funds: Tax on income distributed to mutual fund unit holders.
- Fringe Benefits Tax: Tax on benefits provided to employees by employers.
- TDS Shortfall: Any shortfall in Tax Deducted at Source payments.
- TCS Shortfall: Any shortfall in Tax Collected at Source payments.
How will I receive the demand notice from the Income Tax department?
You will receive the notice via email from the Income Tax department, and you may also get an SMS alert indicating that the notice has been sent to your registered email.
Can salaried individuals receive notices from the Income Tax department?
Yes, salaried individuals can receive notices, as it depends on how accurately they filed their tax returns, not on their income level.
What happens if I don’t pay a demand of ₹40 lakhs after the final notice?
If you fail to pay after the final notice, the department may initiate recovery actions to collect the owed amount.
What if I disagree with a tax demand notice?
If you disagree with the notice, you can appeal to a higher authority.
What does it mean to be an “assessee in default”?
An assessee becomes “in default” if they do not pay the amount specified in the demand notice within 30 days of receiving it.
Can I file my taxes again before e-verifying my original return?
You can file a revised return to correct issues in the original return, but it’s best to verify both to avoid future problems.
How can I check my tax demand notice online?
To check your demand notice, log in to the Income Tax website using your PAN, password, and captcha code, then select “Respond to Outstanding Tax Demand” under Pending Actions.
What happens if I ignore the demand notice?
Ignoring the notice may lead to formal legal action, which could be used against you in court.
What if I don’t respond to the notice within 30 days?
Failing to respond in time will confirm the demand, and it may be adjusted against any tax refund you might have or shown as payable against your PAN.
How do I challenge an income tax demand?
To challenge a demand, you can file an appeal online using Form 35 on the e-Filing portal. The appeal will be heard by the Joint Commissioner (Appeals) or Commissioner of Income Tax (Appeals).
Can I pay the income tax demand in installments?
Yes, you can apply for an extension or for installment payments, but you must provide valid reasons and sufficient evidence for your request. The Assessing Officer has the discretion to approve or deny your application.
