The Income Tax Department has set a limit of 1 lakh rupees per taxpayer for reducing demands. A tax demand is a document that indicates how much tax an individual or organization owes.

This decision was taken after the announcement in the interim budget regarding the withdrawal of direct tax demands. The Income Tax Department has prepared an outline of the criteria for withdrawal, focusing on demands up to the assessment year 2015-16 through an official order.

Finance Minister Nirmala Sitharaman had announced in the interim budget for 2024-25 that tax demands up to Rs 25,000 for the assessment year 2010-11 and up to Rs 10,000 for the assessment years 2011-12 to 2015-16 would be waived. It is hoped that this step will benefit taxpayers and reduce the financial burden.

The tax department’s order specifies that outstanding demands related to income tax, property tax, and gift tax will be waived and closed by January 31, 2024. However, this is subject to a maximum limit of one lakh rupees for any specific taxpayer or assessee. This limit includes the principal component along with interest, penalty, fees, surcharge, and other components of the tax demand.

This exemption will not apply to demands raised against the Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) provisions under the Income Tax Act.

In recent orders, the Central Board of Direct Taxes (CBDT) has clarified that entries related to liabilities exceeding the limit of Rs 1 lakh in the books of officers should include not only the principal component but also interest, penalty, fee, surcharge, or any other amount related to tax obligations. This is under three tax laws.

However, the cessation of demands does not entitle debtors to make any claim for credit or refund. In addition, this action does not provide exemption from any pending, initiated, or contemplated criminal proceedings against the debtor.

CBDT has stated that demands arising within the prescribed limit, even if eligible for deduction or collection of tax under the provisions related to TDS or TCS, will not be discontinued against the entities required to withhold or collect tax at source.