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How to reply to a demand notice for tax arrears
May, 29th 2015

Here are some quick tips for taxpayers on how to file an online response to income tax demand notice, they may have received on tax arrears

Several people are receiving demand notices from the Income Tax department for tax arrears, despite having paid all their dues on time. Why is this happening? We learn that this has happened because the Assessing Officers (AOs) are uploading the tax demands on the website of the Income Tax Central Processing Unit (CPU), which automatically sending out notices and causes panic among taxpayers.

The outstanding tax demand in the notice may be inaccurate for various reasons. A common one is non-reporting or delayed reporting of TDS by deductors leading to mismatch between the claim and data available with the I-T department. Other reasons are: non-posting of challans, non-disposal of rectification applications and incorrect details of income or pre-paid taxes reported by taxpayer. Since the demand notice is issued, the taxpayer has no option but to respond to it without fail.

One Moneylife Foundation member has received a tax demand notice for the assessment year (AY) 2008-09 that too when, he had received a refund for the same year. But this is not the first time it has happened. In the past, he had received similar notice in the past, but after noting his response, the assessing officer (AO) accepted the mismatch in tax deducted at source (TDS) and released the refund.

After a hue and cry from taxpayers who have received such notices despite having paid taxes in time, the Central Board of Direct Taxes (CBDT) has brought out detailed guidelines to help taxpayers file their response online. The Circular explains various steps to be taken by the taxpayers to view and submit their response and also spells out various facilities available to taxpayers as well as responsibilities of the assessing officers-AOs to verify and take corrective actions.

A demand up to Rs1 lakh for an Assessment year in case of an individual or Hindu undivided family (HUF), which has already been paid but is shown as outstanding due to mis-match or other errors, can be rectified on the basis of evidence of tax paid as submitted by the taxpayer.

About 95% of entries of demand involve demand up to Rs1 lakh and about 90% of such assesses are individuals and HUFs, the I-T department said.

Here are the steps that a taxpayer needs to take to file online reply to a tax demand notice...

1. Visit e-filing site of I-T department

2. Log in using your user ID, password, date of birth and the captcha code

3. Go to e-file menu and select 'Response to Outstanding Tax Demand'. You will get following details...

4. Here you can choose your response depending upon the situation related with your tax payments.

• In case, you select, the 'Demand is correct" and submit it, then you cannot "disagree with the demand" any further. After submitting, you will get a success message. Remember, if there is any refund due, then it would automatically be adjusted against the tax demand (plus interest) outstanding. In the other case, you will have to immediately pay the amount due.

• If you select, 'Demand is partially correct', then you will have to enter the amount, which is correct and the amount that is incorrect.

For the amount, which is incorrect, you will have to mandatorily file one or more reasons. If demand is already paid, then challan identification number (CIN), if available. You need to give details, in case, the demand is reduced, or if appeal is filed, or if rectification/revised return is filed.

• Based on the reasons, you selected, you need to provide additional information and upload relevant documents.

• If you select 'Disagree with the Demand', then you need to furnish details of disagreement along with reasons.

5. After successfully submitting the details, you will get the transaction ID. After submitting your response, you can also check the details by clicking on 'View' button. Here ends your part.

The AO, who had issued the demand notice, then checks, verify details submitted by you, and take necessary action. If your reply or I-T department’s record shows that the tax has already been paid and there is a challan number available for it, then the AO reduces the demand as per the case.

If there is a mismatch in advance tax or self-assessment tax, then the AO passes order under Section 154 of the I-T Act.

Demand due to TDS Mismatch:
a. If the taxpayer's reply or Departmental records show that the demand is on account of TDS mismatch and TDS credits are available in the system, the AO should follow steps as under:

i. The AO should reduce the demand by passing rectification order u/s 154 on the system after taking into account the TDS credits available on the system.
ii. If the demand is prior to 1 April 2010, the demand has to be net reduced directly on the CPC-FAS system after rectification u/s 154.

b. If the credits are not available in 26AS: The reduction can be one only in the cases of Individuals and HUFs. Further, the amount of reduction should not exceed Rs1 lakh for that AY and AO should take following steps:

i. AO should pass order u/s 154 manually after obtaining the TDS certificate from the assessee based on which claim has been made.
ii. In case, the outstanding demand is more than Rs25,000 for that of the quantum of demand being reduced, the AO should obtain an indemnity bond.
iii. Additionally, in case the demand being reduced under paragraph 4.2.(b).(i) above, exceeds Rs50,000 for that AY for the assessee, besides obtaining the indemnity bond, approval of Range Head should be taken on file before removing/reducing the demand.

Demand already reduced or action is pending:
(a) If the taxpayer's reply or Departmental records show that demand has already been reduced byway-of an order (rectification order, appeal effect order etc.), the demand has to be reduced directly on the CPC-FAS system.

(b) In case where rectification or giving effect order to reduce demand is pending, the same should be completed and revised demand should be reflected.

(c) It is also clarified that after taking action as per pare 4.1 or 4.2, if any refund becomes due to the taxpayer, the same may also be issued.

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