Interest Under Section 220 (2) – Penalty For Not Paying The Taxes After Demand Notice

Tax and its types?

In simple terms, tax is the amount levied compulsorily on the earning individuals acting as the source of income for the government for public benefits. If followed properly, the tax is not as complicated. But, for all those making delayed tax payments, strict legal actions can follow. The taxes paid by individuals are mainly of two types:

• Direct tax:

  The individuals pay this tax directly to the government from the income earned. Keeping this in mind, the government brought the Income Tax Act into action in 1961. The income does not mean only the amount earned from the job or the business but also includes all the other sources. These include rent amount, investments, relief or reimbursement, or even the lottery among several others.

• Indirect tax:

  The individuals pay this tax in the form of goods and services to the government. The earning individuals need not necessarily pay this amount. One of the most common examples of indirect taxes is GST.

The income tax act and the notices

Brought into action in 1961, the Income Tax Act aims at the improvisation and details of the income tax levied on the individuals. It includes all the details about the administration and collection of the income tax. Among all the taxes, you surely do not want to increase your burden in any format. However, in case the individual fails to pay the tax even after the notice, they have to pay the penalty regardless of any exemptions, under section 220 (2) of income tax act 1961. Depending on the procedure of the income tax payment, several notices are served for various reasons. These notices include the following:

• Inquiry before assessment: Notice under section 142(1)
• Scrutiny Notice- Notice under section 143(2)
• Letter of intimation- Notice under section 143(1)
• Income escaping assessment- Notice under section 148
• Notice of demand- Notice under section 156
• Defective return- Notice under section 139(9)
• Set off of refunds against tax remaining payable- Notice under section 245

Section 156 of the income tax act: Demand notice

In case anyone fails to pay the interest or taxes, they have to face strict legal actions. But, before taking any legal actions, the government serves an official letter with a deadline of 30 days to pay the tax. Under section 156, in case of non-payment of the taxes, the assessing sends a legal notice to the taxpayer. The notice of demand, named as Form 7, specifies the amount that the taxpayer has to pay. They provide 30 days to the taxpayer to pay the specified amount. In the case of not following the notice, they take two actions against the taxpayer which include:

• Section 220(2) of the income tax act 1961
• The penalty under section 221 of the income tax act

Section 220(2) of the income tax act

Under section 220 (2) of the income act 1961, in case of non-payment of the specified amount within 30 days, the taxpayer has to pay 1% interest under section 220(2) of the income tax act every month. The assessing officer reduces or removes interest under section 220(2) of the income tax act only in case of a valid reason. The taxpayer has to pay the interest under section 220 (2) of the income tax act amount until they pay the final amount as mentioned on the demand notice.

Conclusion

While the taxes are quite difficult to tackle, it is always a good decision to pay them according to the legal rules and regulations. Else, the taxpayer will have to face several consequences according to section 220 (2) of the income tax act. So, if you are still worried about the big amounts, why not pay the taxes on time?