Notice of demand.
289(1)
When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in such form, as prescribed, specifying the sum so payable.
289(2)
Where any sum is determined to be payable by the assessee or the deductor or the collector under section 270 or 399, the intimation under the said sections shall be deemed to be a notice of demand for the purposes of this section.
289(3)
Where the income of the assessee of any tax year includes income of the nature specified in section 17(1)(d) and such specified security or sweat equity shares referred to in the said section are allotted or transferred directly or indirectly by the current employer, being an eligible start-up referred to in section 140, the tax or interest on such income included in the notice of demand referred to in sub-section (1) shall be payable by the assessee within fourteen days—
- (a) after the expiry of sixty months from the end of the relevant tax year; or
- (b) from the date of the sale of such specified security or sweat equity share by the assessee; or
- (c) from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share, whichever is the earliest.
Section Summary:
Section 289 of the new income tax law outlines the process and requirements for issuing a notice of demand when any tax, interest, penalty, fine, or other sum is payable by a taxpayer (assessee) as a result of an order under the Act. It also specifies special provisions for certain types of income, such as income from specified securities or sweat equity shares, particularly in the context of eligible start-ups.
Key Changes:
- Clarification of Demand Notice: The section explicitly states that any intimation under Sections 270 or 399 (related to penalties or other sums payable) will be treated as a notice of demand. This simplifies the process by eliminating the need for a separate notice in such cases.
- Special Provisions for Start-ups: A new provision (289(3)) has been introduced to address income from specified securities or sweat equity shares allotted by eligible start-ups. It provides a specific timeline for payment of tax or interest on such income, tied to events like the sale of securities or cessation of employment.
Practical Implications:
For Taxpayers:
- If a notice of demand is issued, the taxpayer must pay the specified amount within the prescribed time. Failure to do so may result in penalties or further legal action.
- For employees of eligible start-ups who receive specified securities or sweat equity shares, the tax or interest on such income becomes payable only after specific triggering events (e.g., sale of shares or leaving the job), and the payment must be made within 14 days of the earliest of these events.
For Start-ups:
- Eligible start-ups must ensure proper documentation and communication with employees regarding the tax implications of allotting or transferring specified securities or sweat equity shares.
For Assessing Officers:
- They must issue notices of demand in the prescribed format and ensure compliance with the timelines and conditions specified in the section.
Critical Concepts:
- Notice of Demand: A formal communication from the tax authorities specifying the amount of tax, interest, penalty, or other sums payable by the taxpayer.
- Specified Securities/Sweat Equity Shares: These are shares or securities issued by a company, often at a discount or as part of employee compensation, particularly in start-ups.
- Eligible Start-up: A start-up recognized under Section 140 of the Act, which enjoys certain tax benefits and exemptions.
- Triggering Events: For income from specified securities or sweat equity shares, the tax becomes payable based on the earliest of three events:
- 60 months after the end of the relevant tax year,
- Sale of the securities/shares, or
- Cessation of employment with the employer who allotted the shares.
Compliance Steps:
For Taxpayers:
- Respond promptly to any notice of demand by paying the specified amount within the given timeline.
- Maintain records of specified securities or sweat equity shares received from start-ups, including details of allotment, transfer, and sale.
- Monitor triggering events (e.g., sale of shares or leaving the job) to ensure timely payment of tax or interest.
For Start-ups:
- Ensure proper documentation of employee share allotments and transfers.
- Communicate tax implications clearly to employees receiving specified securities or sweat equity shares.
For Assessing Officers:
- Issue notices of demand in the prescribed format and ensure clarity in specifying the amount payable and the due date.
Examples:
Notice of Demand:
- Suppose the Assessing Officer determines that a taxpayer owes ₹50,000 in additional tax after an assessment. A notice of demand will be issued, specifying the amount and the due date for payment.
Specified Securities/Sweat Equity Shares:
- An employee of an eligible start-up receives sweat equity shares in 2023. The tax on this income becomes payable only after one of the triggering events occurs. For instance:
- If the employee sells the shares in 2026, the tax must be paid within 14 days of the sale.
- If the employee leaves the job in 2027, the tax must be paid within 14 days of leaving.
- If neither event occurs, the tax becomes payable 60 months after the end of the tax year in which the shares were allotted (e.g., by 2028).
- An employee of an eligible start-up receives sweat equity shares in 2023. The tax on this income becomes payable only after one of the triggering events occurs. For instance: