In a move to ease the financial burden on businesses and improve cash flow, tax experts are urging the government to relax the pre-deposit requirement for securing a stay on income tax demands. Currently, under Section 254 of the Income Tax Act, taxpayers must deposit 20% of the disputed tax amount to obtain a stay from the Income Tax Appellate Tribunal (ITAT).
Although, it is not a condition for filing an appeal to the ITAT, however, this pre-deposit is required so that tax recovery proceedings are not initiated against the taxpayer during the pendency of appeal. According to official sources, the number of appeals pending with ITATs are over 23,000.
20% Pre-Deposit Straining Business Liquidity
Tax specialists argue that this 20% pre-deposit—often amounting to hundreds of crores—places significant strain on companies’ working capital. The sluggish pace of the appeal process further compounds the issue, locking up crucial funds for extended periods.
Rohinton Sidhwa, Partner at Deloitte India, suggested a more flexible approach. “The ITAT should have the discretion to grant a stay based on the merits of each case and the financial standing of the taxpayer, with an outer limit of 20%, if necessary,” he said.
Rising Appeals Due to Flawed Assessments
Manish Garg, Lead – Transfer Pricing and Litigation at AKM Global, highlighted the increasing instances of ineffective tax assessments by officers. This forces taxpayers into lengthy appeal processes. “Removing the 20% threshold would alleviate pressure on taxpayers, allowing stays without upfront deposits,” he explained.
600,000 Appeals Pending, Experts Push for Faster Resolution
The backlog of appeals is staggering. As of August, around 600,000 appeals were pending at the Commissioner of Income Tax (Appeals) [CIT(A)] level, while 23,000 cases awaited resolution at the ITAT. Experts are urging the government to fast-track appeal disposals to provide tax certainty and rebuild taxpayer confidence.
Sanjoli Maheshwari, Executive Director at Nangia Andersen India, recommended clubbing appeals related to the same issue across different assessment years. She also proposed a Rs 10 crore threshold for direct ITAT appeals and strict timelines for CIT(A) decisions.
Conclusion: A Call for Business-Friendly Tax Reform
Industry leaders believe that reforming the pre-deposit rule and accelerating appeal resolutions would create a more business-friendly tax environment, enhancing both compliance and trust. With India’s economic growth relying heavily on business resilience, these changes could be a crucial step forward.
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