When assesse is considered to be in default.

409.

A person shall be deemed to be an assessee in default, if such person—

• (a) does not pay on the date specified in section 408, any instalment of the advance tax that he is required to pay by an order of the Assessing Officer under section 407(1) and (4); or
• (b) does not send to the Assessing Officer an intimation under section 407(8) on or before the date on which any such instalment as is not paid becomes due; or
• (c) does not pay on the basis of his estimate of his current income, the advance tax payable by him under section 407(9), in respect of such instalments.

Explanation

Section Summary:

Section 409 of the new income tax law defines when an assessee (taxpayer) is considered to be in default. This section applies to situations where the taxpayer fails to comply with advance tax payment obligations or related reporting requirements. The purpose is to ensure timely payment of advance tax and proper communication with tax authorities.

Key Changes:

1. Clarification of Default Scenarios: The section explicitly outlines three specific scenarios where an assessee is deemed to be in default:

   • Failure to pay advance tax instalments by the due date.
   • Failure to send an intimation to the Assessing Officer when an instalment is not paid.
   • Failure to pay advance tax based on the taxpayer's own estimate of current income.

2. Alignment with Section 407: The section references Section 407, which deals with advance tax payment obligations, ensuring consistency in the application of advance tax rules.

Practical Implications:

• For Taxpayers: Taxpayers must ensure timely payment of advance tax instalments and comply with reporting requirements. Failure to do so will result in being classified as an "assessee in default," which may lead to penalties or interest charges.
• For Businesses: Businesses with advance tax obligations must maintain accurate records of their income estimates and payments to avoid default status.
• For Compliance Processes: Tax authorities will have a clear basis to identify and act against defaulters, streamlining enforcement.

Critical Concepts:

• Advance Tax: Tax paid in instalments during the financial year based on estimated income, rather than at the end of the year.
• Assessee in Default: A taxpayer who fails to meet their tax payment or reporting obligations as per the law.
• Section 407: Governs the calculation and payment of advance tax, including the due dates and methods for estimating income.

Compliance Steps:

1. Pay Advance Tax on Time: Ensure all advance tax instalments are paid by the due dates specified under Section 408.
2. Submit Intimation: If an instalment is not paid, send an intimation to the Assessing Officer by the due date, as required under Section 407(8).
3. Estimate Income Accurately: If paying advance tax based on self-estimated income, ensure the estimate is accurate and payments are made accordingly.

Examples:

• Scenario 1: A taxpayer is required to pay an advance tax instalment of ₹50,000 by June 15. If they fail to pay by this date and do not send an intimation to the Assessing Officer, they will be deemed an assessee in default.
• Scenario 2: A business estimates its current income and calculates advance tax payable as ₹2,00,000. If they fail to pay this amount by the due date, they will be considered in default.

This section ensures accountability and timely compliance with advance tax obligations, reducing the burden on tax authorities and promoting smoother tax administration.