Demand Notice from the Income Tax:

Introduction:

Receiving a demand notice from the Income Tax Department can be stressful, but don’t panic! Understanding why you received it and how to respond properly can save you from penalties and legal trouble. This guide will help you navigate through the process.

What is Section 156 of the Income Tax Act 1961?

A demand notice under Section 156 of the Income Tax Act is an official communication issued by the Assessing Officer, requiring the assessee to discharge a tax liability arising from an order passed under the Act. This notice mandates the payment of tax, interest, penalty, fine, or any other sum due, as determined under the provisions of the Act. It explicitly states the amount payable and stipulates a prescribed deadline for payment, typically within 30 days from the date of receipt of the notice.

Notice for sum payable u/s 143(1), 200A (1), 206CB (1) shall be deemed to be Notice of Demand u/s 156 of the Income Tax Act.

Reasons for Receiving a Demand Notice

Here are some common reasons why you might receive a demand notice:

• Mismatch in TDS (Tax Deducted at Source) details
• Incorrect tax computation in your ITR (Income Tax Return)
• Delayed or non-payment of advance tax or self-assessment tax
• Errors in filing tax returns
• Non-reporting of income
• Non-compliance with tax notices issued earlier

How to Respond to an Income Tax Demand Notice

There are following options available for a taxpayer:

• Demand is correct
• Disagree with demand (Either in Full or Part)

Note: Once you admit that “Demand is correct”, then you cannot “Disagree with demand” in future.

You can follow these steps to respond against the Income Tax Demand Notice

1. Log in to the Income Tax e-filing portal.
2. Select the option “Respond to outstanding demand” under “Pending Actions”.

3. Select the demand in relation to a particular assessment year.
4. Click on Submit response

5. Now there is 2 option available, “Demand is correct” or “Disagree with Demand”.
6. Select “Demand is correct” if you fully agreed with demand raised by department
7. Under “Demand is correct” There are further two option, “Not yet paid” or “Yes, already paid and challan has CIN”.
8. If you had not paid the demand yet, proceed by selecting “Pay Now”

9. If you already paid the demand and have CIN, then select “Yes already paid, and challan has CIN” and entered the requisite information

10. If you select “Disagree with demand (Either in full or part)”, then select the appropriate reason on disagreeing and provide the explanation as required.

11. Once you filed the requisite data, click on submit, Your response will be submitted and you will receive an confirmation which have transaction ID for your future reference.

Consequences of Ignoring a Demand Notice

Ignoring a demand notice can lead to serious consequences, including:

• Additional penalties and interest on the outstanding amount.
• Legal proceedings, including property or bank account attachments.
• Difficulty in obtaining loans and financial services.

Time Limit to response against demand notice

The assessee is required to paid the demanded amount within 30 days from the date of service of the notice. However, in exceptional circumstances, the Assessing Officer, with prior approval from the Joint Commissioner, may reduce this statutory period.

Additionally, the assessee may submit an application to the Assessing Officer seeking an extension of time for payment or permission to discharge the liability in installments, provided such a request is made before the expiration of the stipulated 30-day period.

Sample notice of demand under section 156

The sample of the demand notice is as follows:

Penalty or interest in case of delay in response or payment

• Penalty: The Assessing Officer is empowered to impose a penalty of up to the amount specified in the income tax demand notice, subject to the condition that the assessee is afforded a reasonable opportunity of being heard. However, no penalty shall be levied if the assessee satisfactorily establishes that the default occurred due to bona fide and sufficient reasons.
• Interest: Interest shall accrue at the rate of one percent per month or part thereof on the outstanding demand beyond the expiry of the prescribed 30-day period. This interest liability shall remain applicable even if the Assessing Officer grants an extension of time for payment or permits payment in installments. The assessee is obligated to discharge such interest along with the outstanding demand.

FAQs on Income Tax Demand Notice

Q. Does a salaried person also serve an income tax department notice?

The issuance of departmental notices is not contingent upon the income level of an individual but rather on the accuracy and compliance of the income tax return filed. Consequently, salaried individuals are also subject to receiving such notices if discrepancies, inconsistencies, or other compliance issues are identified in their tax filings.

Q. Can I get an extension to pay the demand amount?

Yes, you can request an extension or installment payments by submitting an application to the Assessing Officer.

Q. What if I do not respond to the notice?

Ignoring the notice can result in penalties, interest, or other legal action.

Q. Can I challenge the demand amount?

Yes, if you disagree, you can file a rectification request or challenge against the order at higher authority.

Q. Can income tax demand be paid in installments?

The assessee may submit an application requesting an extension of time or permission to pay the demand in installments, provided there is a valid reason supported by sufficient evidence. The Assessing Officer holds the discretionary authority to either approve or reject such a request based on the merits of the case.

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Dealing with an Income Tax Demand Notice can be challenging, but with the right approach, it can be managed effectively. At Taxunplug, we specialize in handling both Income Tax and GST notices, providing expert guidance to ensure compliance and minimize risks. Our experienced team assists in responding to notices, filing necessary appeals, and resolving tax disputes efficiently.

Facing an Income Tax Demand Notice? Connect with us by dropping your Name, Mobile and Email at Taxunplug. We will take care of all the sticky things and helps to take timely action, and ensure compliance to avoid legal complications. The information provided in this blog is for general informational purposes only and should not be considered legal or tax advice. Please stay updated with the latest regulations related to the above details. We recommend consulting a qualified tax professional, such as Taxunplug, for expert assistance with all your tax matters