67% of outstanding direct tax demand difficult to collect: IT Dept to Parliamentary panel

New Delhi: Two-third of Rs 43 lakh crore outstanding direct tax demand is "difficult to collect", Income Tax Department has informed a Parliamentary panel.

When the Standing Committee on Finance expressed concern over the huge arrears of demand and desired to know the possible steps, including a moratorium, that can be taken to address this, the Chairman of CBDT told the panel that arrears are a cause for concern.

"We have around Rs 43,00,000 crore of arrear demand which is a cause of concern for us. Partly, this is a legacy issue. This arrear pertains to mid-90s also because earlier what used to happen was there was essentially a manual registers that we were keeping," the CBDT Chairman told the panel.

The report of the Standing Committee on Finance has been tabled in Parliament.

The Revenue Secretary informed the panel that a lot of this demand is also "fictitious".

The Committee found that in respect of Direct Taxes, Rs 10,55,906 crore tax arrears are pending for five or more years.

"The Committee has been given to understand that some of the arrears date back even to the mid-1990s," the report said.

The panel also noted that as per tax authorities, out of Rs 43,07,201 crore arrears, Rs 28,95,851 crore which comes to 67 per cent, is difficult to collect. It also found that a lot of this demand arrear is also fictitious.

Before the digitisation of processes, a manual register system was in place, which did not account for interest.

However, the current system now calculates interest annually.

"Since income tax penalty is very heavy, every year of delay will keep on adding to the demand, which is in any case remains non-collectible. The Committee express their concern over the present scenario and believe that there is a pressing need to review the tax assessment system to make it more efficient in collection of taxes, keeping in view the ground realities," the report said.

The Committee was of the view that while genuine demands should be strictly collected, the tax authorities should also undertake a thorough introspection of the existing tax assessment system and remain sensitive to the hardships faced by honest taxpayers due to erroneous or inflated tax demands.

The Committee recommend that, since all the tax records have been digitised, it is "high time to take decisive interventions", including writing off demands/ imposing moratoriums, to reduce and trueing up the huge backlog of demand arrears in a time-bound manner, the report said.