Under Income tax act, 1961 the meaning of assessee includes assessee in default. If you becomes the assessee in default and if you are not able to clarify your position, then you are liable for penal interest. so let us check who are the persons treated as assessee in default under the Act.
If any person fails to pay any tax (other than advance tax) specified in a demand notice u/s 156 within 30 days of the service of notice of demand, he shall be deemed to be an ASSESSEE IN DEFAULT for the amount remaining unpaid and he is liable to pay simple interest u/s 220 at the rate of 1.25% for every month or a part of a month from the expiry of 30 days of the service of the demand notice.
The Chief Commissioner or Commissioner may reduce or waive the amount of interest payable by an assessee under section 220(2), if he is satisfied that-
- Payment of such interest has caused or would cause genuine hardship to the taxpayer.
- Default in the payment of the amount on which interest has been paid or was payable, was due to circumstances beyond the control of the taxpayer.
- The assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
Besides above section an assessee is treated as an assessee in default for failure to deduct or collect and pay tax at source in the following defaults. These defaults are mentioned u/s 201(1A or 206C(7).
- If the person responsible for deducting/collecting tax at source does not deduct/collect tax at source, wholly or partly.
- After deducting/collecting tax, he fails to pay the same as required by the Act.
In the above two cases, the person responsible for deducting /collecting tax is liable to pay interest. Interest is payable as follows:-
With effect from July 1, 2012, the asseseee shall not be deemed to be as assesse in default if-
- The resident recipient has furnished his return of income under section 139 and the resident recipient has paid tax on such income: and
- The assessee submits a certificate to this effect from a chartered accountant.
In this situation, the resident recipient shall be liable to pay interest at the rate of 1% from the date on which tax was deductible to the date of furnishing of return of income.
Similar provisions are applicable from 1 July, 2012 in the case of non-collection of tax at source.
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