Two-third of Rs 43L cr of direct tax demand difficult to collect, IT dept informs Parl panel

New Delhi: The Income Tax Department has informed a Parliamentary panel that nearly two-thirds of the outstanding direct tax demand, amounting to Rs 43 lakh crore, is challenging to recover. The revelation was made before the Standing Committee on Finance, which had raised concerns over the massive backlog and sought potential solutions, including a moratorium.

During discussions with the panel, the Chairman of the Central Board of Direct Taxes (CBDT) acknowledged the issue, noting that a substantial portion of the arrears dates back several decades.

“We have around Rs 43,00,000 crore of arrear demand, which remains a significant concern. Some of this is a legacy issue, with arrears going as far back as the mid-1990s. Earlier, we maintained manual registers, which had limitations in tracking and updating demands accurately,” the CBDT Chairman told the panel.

The findings of the Standing Committee on Finance were presented in a report tabled in Parliament. The Revenue Secretary further informed the panel that a portion of the outstanding tax demand is not realistic.

“A lot of this demand is fictitious,” the Revenue Secretary stated, pointing to historical inefficiencies in record-keeping before digitisation.

According to the committee’s report, tax arrears pending for five years or more stand at Rs 10,55,906 crore. The report highlighted that as per tax authorities, Rs 28,95,851 crore, or approximately 67 per cent of the total arrears, falls into the category of difficult-to-recover amounts.

Before the implementation of digital records, the tax system relied on manual registers, which did not reflect interest accumulation accurately. The transition to digitisation now ensures annual interest calculations, further complicating the collection process.

“Since income tax penalties are substantial, every year of delay continues to inflate the demand, making a significant portion of it practically irrecoverable. The committee has expressed concerns over this situation and believes there is an urgent need to reassess the tax assessment system to improve efficiency while considering practical challenges,” the report stated.

The panel recommended that while legitimate tax demands should be pursued with diligence, authorities must also review the tax assessment framework to prevent undue burdens on honest taxpayers due to incorrect or inflated tax claims.

“With all tax records now digitised, it is imperative to take decisive steps, including writing off uncollectable demands or imposing moratoriums, to rationalise and clear the backlog within a defined timeframe,” the committee suggested in its report.