Section 220 of ITA, 1961 : Section 220: When Tax Payable And When Assessee Deemed In Default

Explanation using Example

Imagine a small business owner, Mr. Sharma, receives a notice of demand under Section 156 of the Income Tax Act, 1961, stating that he owes additional taxes amounting to Rs. 50,000. The notice, served on April 10, indicates that the payment is due within thirty days, which means Mr. Sharma has until May 10 to pay the tax.

However, the Assessing Officer believes that delaying payment for the full thirty days could harm the revenue collection and, with the approval of the Joint Commissioner, issues a revised notice demanding payment within fifteen days. Mr. Sharma must now pay by April 25.

Mr. Sharma fails to pay the tax by the revised due date. Consequently, starting from April 26, he will incur a simple interest charge of one percent per month on the outstanding amount, as per sub-section (2) of Section 220.

Due to financial difficulties, Mr. Sharma approaches the Income Tax Department with a request to reduce the interest charges, citing genuine hardship. If the Principal Commissioner finds Mr. Sharma's reasons compelling, they have the authority to reduce or waive the interest under sub-section (2A).

Additionally, Mr. Sharma decides to appeal the tax demand. While the appeal is pending, the demand notice remains valid, and he will not be considered in default for the disputed amount, as long as he complies with any conditions set by the Assessing Officer under sub-section (6).

If Mr. Sharma had income from a foreign country with restrictions on remittance, he wouldn't be deemed in default for the tax due on that particular income until the restrictions are lifted, as per sub-section (7).