In the past few days many salaried employees have been receiving Notice of Demand from the Income Tax Authorities by way of Intimation U/s 143 in which the said employee is being asked to pay Interest U/s. 234B or 234C.
It should be noted that Interest U/s 234B / 234C is recoverable from them ONLY when they are in default for not paying Advance Tax.
U/s. 209 (d) of the Income Tax Act, Advance Tax has been defined to be the Residual Tax i.e. the Balance Tax payable AFTER reducing the Income Tax Deducted at source i.e. (TDS) from the Total Tax Liability of the person.
If entire tax liability is already recovered as TDS, then there is NIL balance / residual tax and therefore advance tax liability does not exist and so interest for default cannot be recovered.
Further, if such Residual Balance is less than Rs.5000/-, then the same can be paid as Self- Assessment Tax along with the Return of Income. In fact this limit is enhanced to Rs.10000/- from. 01/04/2009.
In case of salaried employees not having any other income, the tax is deducted at source by the employer and there is no balance tax payable.
Since there is no Advance Tax payable by the employee, the Notice of Demand u/s 156 / u/s 143(1), for Interest U/s.234B/C is bad in law.
This appears to be a software glitch which the Income Tax Authorities needs to look into.
Employees receiving such Intimation Notice should reply to the ITO as under:-
“Our employers have deducted income tax at source from our salary income and that there was no residual / balance tax liability in the nature of advance tax as defined U/s.209 (d) of the Income Tax Act, 1961. Since there is no Advance Tax liability in this case, Interest U/s 234B or 234C is not applicable. You are requested to rectify the order u/s 143(1) and send me a revised Intimation.”
Since then, I have also requested our local Member of Parliament, Shri Sanjay Nirupam, to use his good offices and take up and resolve this issue with the Revenue authorities.
The Times of India also carried an article on this issue a few days back.
A Visitor to this blog has informed us that I.T.Dept. has opened a Special Counter to deal with this glitch by seeking a uniform statement of particulars from concerned recipients of such notices.