Challenges in securing stay on tax demand undermine faceless assessment gains

Adverse tax assessments by tax authorities often result in additional tax liabilities, commonly known as «tax demand.» Under the Income-tax Act (IT Act), taxpayers must pay the tax demand within 30 days of receiving the demand notice. While they have the right to challenge an adverse order before a higher forum, the complexity of managing the tax demand remains an independent challenge—one that requires urgent attention.

The Assessing Officer (AO) has the discretion to grant a stay on the tax demand while an appeal is pending before the commissioner, provided the taxpayer demonstrates valid grounds. However, obtaining a stay order is often a cumbersome and inefficient process. Taxpayers frequently need to follow up multiple times or make repeated visits to the tax office. The lack of automation, coupled with the absence of a legally defined timeframe for processing stay applications, undermines the efficiencies gained through faceless assessments.

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To secure a stay, the AO may require the taxpayer to pay up to 20% of the disputed tax. In specific cases, the AO can demand a higher percentage, but only under well-defined circumstances and with documented reasons and approval from superiors. These requirements are outlined in the Central Board of Direct Taxes (CBDT) guidelines, which state that a stay may be granted once 20% of the tax demand is paid while filing an appeal with the Commissioner of Income Tax (Appeals) [CIT(A)].

Yet, in practice, even after meeting this requirement, taxpayers often do not receive a formal stay order. Consequently, the outstanding demand continues to reflect on the taxpayer’s account, enabling the tax department to