Section 411 When tax payable and when assessee deemed in default.

Income-tax Act, 2025

At a Glance

The document considered is Clause 411 of the Income Tax Bill, 2025 (Old Version), titled "When tax payable and when assessee deemed in default." It sets out the time for payment of tax specified in a notice of demand, consequences of non-payment, interest on unpaid amounts, provisions for instalments and discretion to waive or reduce interest, and special rules on foreign remittance constraints. It primarily affects taxpayers who receive notices of demand and tax authorities involved in collection and recovery. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 411 of the Income Tax Bill, 2025 sits within Division D - Collection and Recovery, and cross-refers to section 289 (notice of demand) of the same Bill and to the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 (11 of 1964). It also cross-refers to various sections (287, 288, 359, 363, 365(10), 368, 377, 378) and to section 245D(4) of the Income-tax Act, 1961 (43 of 1961) for consequences of subsequent orders affecting tax/interest. Definitions: Not stated in the document beyond the references to notices of demand and specified sections; no separate definitional sub-clause is included in the text.

Statutory Provision Mode

Text & Scope

Clause 411 prescribes:

(1) the time for payment of any amount specified in a notice of demand u/s 289 (except advance tax) - ordinarily within thirty days of service; an Assessing Officer may specify a shorter period with previous approval of the Joint Commissioner when the AO believes allowing the full thirty days would be detrimental to revenue;

(2) a notice of demand remains valid while related appeal or other proceedings are pending and has the effect accorded by section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964;

(3) non-payment within the period in (1) attracts simple interest at 1% for every month or part of a month, the period running from the day after the due date until payment;

(4) no overlapping interest where interest for the same period is charged u/s 398(3) on tax specified in an intimation u/s 399;

(5) the AO may, on application made before expiry of the due date, extend time or allow instalments subject to conditions;

(6) where assessments/orders subsequently reduce or increase the taxable amount, corresponding adjustments/refunds or liability for interest follow;

(7) transitional rule for interest on periods beginning on or before 31 March 1989 and ending after that date-interest for the portion after that date is to be calculated at 1.5% per month;

(8) the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner may, on application, reduce or waive interest if payment causes genuine hardship, default was due to circumstances beyond control, and the assessee has cooperated in inquiry/proceedings;

(9) orders accepting or rejecting such applications are to be passed within twelve months from the end of the month in which application is received;

(10) no rejecting order shall be passed unless the assessee is given an opportunity of being heard;

(11) failure to pay at the place and to the person mentioned in the notice within specified/extended time renders the assessee in default;

(12) default in any instalment when instalments are allowed results in deemed default of the whole outstanding amount and other instalments become due on the date of the defaulted instalment;

(13) the AO may, in his discretion and subject to conditions, treat an assessee presenting an appeal u/s 356 or 357 as not in default in respect of the amount in dispute while the appeal remains undisposed;

(14) where income arises in a foreign country whose laws prohibit/restrict remittance to India, the AO shall not treat the assessee as in default for the portion that cannot be brought to India and continue to treat as not in default until prohibition is removed;

(15) for purposes of (14) income is deemed brought into India if utilised for expenditure actually incurred by the assessee outside India or if brought into India in any form whether capitalised or not.

Interpretation

The text manifests a legislative design to prioritise prompt collection (30-day rule) while providing limited administrative discretion to shorten the period where revenue interest is acute. The interest regime is simple interest at a uniform 1% per month, subject to statutory exceptions and administrative relief. The Bill recognises the continuing validity of recovery proceedings during appellate processes and incorporates cross-references to validation legislation (1964 Act). The inclusion of the 1989 transitional interest rule indicates an intent (in the Bill) to address historically overlapping regimes; the presence of explicit waiver/reduction criteria and procedural safeguards (timeline, hearing) indicates an intent to balance revenue protection with taxpayer hardship considerations.

Exceptions/Provisos

Key carve-outs: (i) the Assessing Officer may shorten the payment period with prior Joint Commissioner approval; (ii) waiver/reduction of interest is available under specified hardship/cooperation conditions; (iii) instalment default rules deem full liability on single instalment default; (iv) where foreign law prevents remittance, the AO must not treat the taxpayer as in default for the non-remittable portion and must continue that treatment until removal of the restriction; (v) no duplicate interest where another section levies interest for the same period. Thresholds and forms: Not stated in the document (no prescribed forms or numeric thresholds besides interest rate and 30-day period).

Illustrations

• Example 1: Taxpayer A receives a notice of demand u/s 289 and does not pay within 30 days. Simple interest at 1% per month is chargeable from day 31 until payment. If A applied before day 30 for instalments and defaulted on one instalment later, the entire outstanding becomes due on the date of default. (All elements drawn from the text.)
• Example 2: Taxpayer B receives notice but files an appeal in respect of the amount; the notice remains valid during disposal by the last appellate authority and retains the continuing effect under the 1964 Act. (From the text.)
• Example 3: Taxpayer C has income in a country that legally prohibits remittance; the Assessing Officer must not treat C as in default for the portion that cannot be brought into India and should continue that non-default treatment until the restriction is lifted. (From the text.)

Interplay

Clause 411 expressly cross-refers to section 289 (notice of demand), sections 356/357 (appeals), numerous assessment/revision/rectification sections (287, 288, 359, 363, 365(10), 368, 377, 378) and settlement provisions (section 245D(4) of the Income-tax Act, 1961), and invokes section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964. This creates direct interplay between assessment outcomes and interest/collection consequences. No additional rules, notifications or forms are specified in the Clause itself. Any detailed procedural aspects-e.g., format of application for instalments or for waiver-are Not stated in the document.

Differences between the two provisions and practical impact

• Transitional interest-rate provision: Income Tax Bill, 2025 (Old Version) contains a specific transitional provision at sub-section (7) providing that for any period commencing on or before 31st March, 1989 and ending after that date, interest under sub-section (3) shall, in respect of so much of such period as falls after that date, be calculated at 1.5% per month (Bill: sub-section (7)). The enacted Section 411 text (Income-tax Act, 2025) does not contain this transitional sub-section; instead there is no equivalent historical-rate rule.
  • Practical impact: removal of the historic 1.5% transitional rate means no special higher rate for periods crossing 31 March 1989 is retained in the enacted provision. This is a substantive deletion in the Bill->Act progression. The practical effect is confined to legacy periods; the documents do not state any retroactivity, savings or transitional arrangement beyond the deleted clause.
• Placement and numbering of waiver/reduction power: In the Bill the discretionary power to reduce or waive interest (subject to conditions) is located at sub-section (8) with accompanying procedural requirements at (9)-(10). In the enacted Section 411 the power to reduce or waive interest appears at sub-section (7) and the procedural timeline and hearing requirements are at (8)-(9).
  • Practical impact: this is a renumbering and slight re-sequencing in the enacted text; substantively the power and its safeguards (timeline for decision, right to be heard) remain present. The document texts do not indicate any change in the scope of the power or different conditions beyond wording variations.
• Minor drafting and phraseology changes: Examples include (1)(b) where the Bill uses "such lesser period" while the Act uses "such period being a period less than thirty days"; and (3)(a) where the Act adds "comprised in the period" to the description of the monthly interest calculation.
  • Practical impact: these are drafting/clarifying edits. They do not, on their face, change the operative mechanics (30-day default period; 1% simple monthly interest) but may affect interpretive clarity on temporal scope of interest calculation.

Practical Implications

• Compliance and risk areas: strict 30-day compliance window for payment of notices of demand (subject to permitted shortening by AO with Joint Commissioner approval); exposure to simple interest at 1% per month from day after due date until payment; risk of acceleration of full outstanding amount on instalment default; potential continued liability during appellate proceedings since notices remain valid pending disposal.
• Record-keeping/evidence points: taxpayers should retain and produce applications for extension or instalments, evidence supporting hardship or circumstances beyond their control when seeking waiver, proof of cooperation in inquiries, and documentary evidence demonstrating inability to repatriate foreign income where applicable. Specific procedural forms/timelines beyond the twelve-month decision deadline for waiver/reduction orders are Not stated in the document.

Key Takeaways

• Ordinary payment period for a notice of demand is 30 days; AO may shorten this only with prior Joint Commissioner approval.
• Non-payment attracts simple interest at 1% per month (or part) from the day after the due date until payment; overlapping interest u/s 398(3) is excluded.
• On application before due date, AO may extend time or allow instalments; default on any instalment results in deemed default of whole outstanding amount.
• The Bill includes a transitional rule applying 1.5% monthly interest for periods crossing 31 March 1989; this is present in the Bill text reviewed but may differ in later enactment (see comparative analysis above).
• The designated Commissioners have power to reduce or waive interest where hardship, circumstances beyond control, and cooperation are established; decision on such application must be made within twelve months from the end of the month of receipt and the assessee must be heard before rejection.
• Notwithstanding appeals, notices of demand remain valid during pendency and have effect as per the 1964 validation Act.
• Where foreign law restricts remittance, the AO shall not treat the non-remittable portion as in default and must maintain non-default treatment until restrictions are lifted.

Full Text:

Section 411 When tax payable and when assessee deemed in default.