Section 156 of the Income Tax Act, 1961 deals with the issue of notice of demand for payment of tax. This section lays down the procedure for issuing and serving a notice of demand to taxpayers who are liable to pay taxes. In this blog, we will discuss the various aspects of Section 156, including its scope, the procedure for serving a notice of demand, and the consequences of non-compliance.
Scope of Section 156
Section 156 applies to all taxpayers who are liable to pay income tax. It empowers the income tax authorities to issue and serve a notice of demand for payment of tax to such taxpayers. The section is applicable for both direct and indirect taxes.
Procedure for Serving Notice of Demand
The procedure for serving a notice of demand under Section 156 is as follows:
- Notice of Demand: The income tax authorities will issue a notice of demand for payment of tax to the taxpayer. The notice will specify the amount of tax payable and the period within which it must be paid. The notice will also provide details of any interest or penalty that may be applicable in case of default.
- Service of Notice: The notice of demand can be served to the taxpayer in any of the following ways:
- Personally
- By post
- Electronically
If the notice is served by post or electronically, it will be deemed to have been served on the date of dispatch.
- Receipt of Notice: Upon receipt of the notice of demand, the taxpayer must pay the tax amount specified within the period mentioned in the notice. In case of default, the taxpayer may be liable to pay interest or penalty as specified in the notice.
Consequences of Non-Compliance
If a taxpayer fails to comply with the notice of demand served under Section 156, the income tax authorities may take the following actions:
- Recovery Proceedings: The authorities may initiate recovery proceedings to recover the tax amount due along with any interest or penalty that may be applicable.
- Penalty: The taxpayer may be liable to pay a penalty for non-compliance with the notice of demand.
- Prosecution: In extreme cases of non-compliance, the taxpayer may be prosecuted for willful default under the provisions of the Income Tax Act.
Revision of Demand Notice
If the taxpayer finds any errors or discrepancies in the notice of demand issued under Section 156, they can file an application for revision under Section 154. The application must be filed within four years from the end of the financial year in which the notice of demand was served.
Rectification of Mistakes
If the income tax authorities discover any mistakes or errors in the notice of demand served under Section 156, they can rectify the same under Section 154. The authorities must rectify the mistake within four years from the end of the financial year in which the notice of demand was served.
Interest on Delayed Payment
If the taxpayer fails to pay the tax amount specified in the notice of demand within the period mentioned, they may be liable to pay interest under Section 220(2). The interest is calculated from the due date of payment until the actual date of payment.
Modes of Payment
Taxpayers can make the payment of tax due as specified in the notice of demand through any of the following modes:
- Online through net banking
- Debit card or credit card
- Offline through a designated bank branch
- By cheque or demand draft
Stay on Demand
If the taxpayer disputes the tax amount specified in the notice of demand, they can file an application for a stay of demand under Section 220(6). The application must be filed within 30 days from the date of service of the notice of demand. The taxpayer must also furnish a security equal to the amount of tax demanded, or a part of it, as determined by the income tax authorities.
Withdrawal of Demand
If the income tax authorities find that the tax amount demanded in the notice of demand is in excess of the tax liability, they can withdraw the demand under Section 156(5). The authorities must also refund any excess tax paid by the taxpayer.
Adjustment of Refunds
If the taxpayer has any refunds due from the income tax department, the authorities can adjust the same against the tax amount demanded in the notice of demand under Section 245. The adjustment can be made only after giving notice to the taxpayer and allowing them an opportunity to be heard.
Interest on Excess Refund
If the income tax department fails to adjust the excess refund against the tax amount demanded in the notice of demand within a period of six months from the end of the financial year in which the refund became due, the taxpayer may be entitled to interest under Section 244A.
Conclusion
Section 156 of the Income Tax Act is an important provision that enables the income tax authorities to recover tax dues from taxpayers. It is important for taxpayers to comply with the notice of demand issued under this section to avoid penalties and other consequences of non-compliance. Taxpayers must also ensure that they maintain accurate and timely records of their income and tax payments to avoid any issues with the tax authorities.
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Frequently Asked Questions (FAQs)
- What is a notice of demand under Section 156 of the Income Tax Act?
A notice of demand is a document served by the income tax authorities on a taxpayer for the payment of outstanding tax dues.
2. What is the time limit for payment of tax as per the notice of demand?
The taxpayer must pay the tax amount specified in the notice of demand within 30 days from the date of service of the notice.
3. Can the taxpayer file an application for revision of the notice of demand?
Yes, if the taxpayer finds any errors or discrepancies in the notice of demand, they can file an application for revision under Section 154.
4. Is there any provision for rectification of mistakes in the notice of demand?
Yes, if the income tax authorities discover any mistakes or errors in the notice of demand, they can rectify the same under Section 154.
5. What is the consequence of non-payment of tax as per the notice of demand?
If the taxpayer fails to pay the tax amount specified in the notice of demand within the period mentioned, they may be liable to pay interest under Section 220(2).
6. What are the modes of payment available for payment of tax as per the notice of demand?
Taxpayers can make the payment of tax due as specified in the notice of demand through online or offline modes such as net banking, credit or debit card, designated bank branch, cheque or demand draft.
7. Can the taxpayer file an application for stay of demand if they dispute the tax amount demanded in the notice?
Yes, the taxpayer can file an application for a stay of demand under Section 220(6) if they dispute the tax amount demanded in the notice.
8. Is it possible for the income tax authorities to withdraw the demand if the tax amount demanded is in excess of the tax liability?
Yes, the income tax authorities can withdraw the demand under Section 156(5) if the tax amount demanded is in excess of the tax liability.
9. Can the income tax department adjust the refunds due to the taxpayer against the tax amount demanded in the notice of demand?
Yes, the income tax department can adjust the refunds due to the taxpayer against the tax amount demanded in the notice of demand under Section 245.
10. Is the taxpayer entitled to interest if the income tax department fails to adjust the excess refund against the tax amount demanded within a period of six months?
Yes, the taxpayer may be entitled to interest under Section 244A if the income tax department fails to adjust the excess refund against the tax amount demanded within a period of six months.
