Stay of Income Tax Demand After Assessment Order in India

An income tax assessment order may result in a substantial tax demand, even where the taxpayer disputes the additions or disallowances made by the Assessing Officer. Filing an appeal against the assessment order does not automatically stop recovery of the disputed demand.

A taxpayer facing recovery proceedings may therefore need to file a separate stay of income tax demand application requesting that the disputed amount not be recovered while the appeal is pending, subject to the applicable law and conditions.

This guide explains the legal provisions governing stay of demand in India, the CBDT deposit guidelines, the Budget 2026 proposal to reduce the standard prepayment, the documents required, the procedure for preparing a stay application and the remedies available where the Department proceeds with recovery.

For comprehensive representation in assessment, reassessment, appeals and tax recovery disputes, visit our Income Tax Assessment and Litigation Services in India.

What Is a Stay of Income Tax Demand?

A stay of demand is relief that temporarily restricts or suspends recovery of a disputed income tax demand, wholly or partly, during the pendency of an appeal or other relevant proceeding, subject to the conditions imposed by the competent authority.

For example, a company may have declared taxable income of Rs. 50 lakh, but the Assessing Officer makes additional disallowances resulting in a substantial demand. The company may dispute the additions in appeal and separately request protection against recovery until the appeal is decided.

A stay does not cancel the assessment order, eliminate the underlying tax liability or determine the outcome of the appeal.

It is also important to distinguish the disputed demand from any amount which the taxpayer accepts as payable.

Does Filing an Income Tax Appeal Automatically Stay the Demand?

No. Filing an income tax appeal does not automatically stay recovery of the tax demand.

The appeal challenges the assessment order or other appealable decision. A stay application separately requests protection from recovery while the dispute remains pending.

Both proceedings should be considered together, particularly where recovery may adversely affect the taxpayer’s business operations, working capital or financial position.

If you are considering an appeal, refer to our guide on How to Appeal Against an Income Tax Assessment Order.

Legal Provisions for Stay of Income Tax Demand

Section 220(6) of the Income-tax Act, 1961

Section 220(6) of the Income-tax Act, 1961 permits the Assessing Officer, where the applicable appeal has been presented, to exercise discretion and treat the taxpayer as not being in default regarding the amount disputed in appeal, subject to appropriate conditions.

The statutory language is significant because the relief is linked to the disputed demand and the pendency of the appeal.

Section 220(3) also permits the Assessing Officer, on an application made before expiry of the prescribed payment period, to extend the payment period or allow payment by instalments, subject to conditions.

Section 411 of the Income-tax Act, 2025

For proceedings governed by the Income-tax Act, 2025, section 411 contains the corresponding framework relating to payment of demand, default and relief during a pending appeal.

Section 289 of the new Act deals with notices of demand.

The relevant provision must be identified by reference to the underlying tax period and applicable transition rules.

Old Act and New Act: Quick Comparison

The provisions are broadly comparable but should not be assumed to be identical in every procedural respect.

Under the applicable transitional framework, proceedings relating to earlier tax periods may continue under the Income-tax Act, 1961 even after 1 April 2026.

Refer to the Income-tax Act, 2025 and the Income Tax Department’s appeal and revision guidance.

How Much Income Tax Demand Must Be Paid to Obtain a Stay?

One of the most frequently disputed questions is whether taxpayers must deposit a fixed percentage of the demand before recovery can be stayed.

CBDT’s 20% Administrative Benchmark

CBDT Instruction No. 1914 and subsequent administrative instructions govern important aspects of demand recovery and stay applications.

The Office Memorandum dated 29 February 2016 originally prescribed a standard benchmark of 15% of the disputed demand at the first appellate stage.

The Office Memorandum dated 31 July 2017 subsequently revised this standard administrative benchmark to 20% of the disputed demand.

However, the administrative benchmark is not an inflexible statutory rule requiring 20% to be deposited in every case.

Budget 2026 Proposal: Reduction From 20% to 10%

The Union Budget 2026-27 announced a proposal to reduce the standard stay-related prepayment from 20% to 10%, calculated on the core tax demand.

This announcement is relevant because the payment burden can materially affect taxpayers pursuing legitimate disputes.

However, the Budget announcement should not automatically be treated as a replacement for the existing CBDT administrative instructions. The applicable implementing instructions and current departmental practice must be verified for the particular stay application.

At the time of this article’s October 2026 review, the available research did not establish a later CBDT Office Memorandum formally replacing the 2017 benchmark with a general 10% benchmark.

Accordingly, taxpayers should examine the current applicable instructions rather than assume that either percentage is universally compulsory.

Can a Stay Be Granted With Less Than the Standard Percentage?

Yes, depending on the facts and applicable law, the competent authority may exercise discretion in determining appropriate conditions for stay.

The Supreme Court in Principal Commissioner of Income Tax v. LG Electronics India Pvt. Ltd. recognised that the administrative guidelines do not prevent the authority from allowing a lower deposit in an appropriate case.

The Bombay High Court also discussed this principle in Vento Power Projects Pvt. Ltd. v. National Faceless Assessment Centre in September 2026.

The application should therefore demonstrate why relief is justified based on the merits, financial circumstances and other relevant factors, instead of relying exclusively on a standard percentage.

Practical Example: Calculation of Disputed Demand and Deposit

Consider the following hypothetical situation:

In this illustration, the taxpayer should separately address the undisputed amount and document the disputed demand and amounts already recovered.

The above calculation is only an example of the 2017 administrative benchmark. It does not establish that Rs. 2,50,000 must necessarily be paid or that a stay will automatically be granted upon such payment.

The Budget 2026 proposal concerning 10% of core tax demand involves a different calculation basis and should not simply be applied to the gross demand without confirming the current implementing instructions.

Factors Considered When Granting Stay of Income Tax Demand

Prima Facie Merits of the Appeal

The taxpayer should explain why the additions or disallowances are genuinely disputed and why the appeal has arguable merit.

Relevant considerations may include factual errors, documents already available on record, settled legal principles and favourable decisions in earlier or comparable proceedings.

Financial Hardship

The taxpayer should explain whether immediate recovery would materially affect business continuity, employee payments, statutory obligations or ordinary financial commitments.

For a company, cash-flow statements, bank records and financial information may help substantiate the hardship.

Balance of Convenience

The authority may consider the relative prejudice arising from immediate recovery and the interests of the Revenue.

Amounts Already Paid or Recovered

Tax payments, bank recoveries, refund adjustments and other amounts already collected should be disclosed and reconciled.

Where appropriate, earlier appellate orders on the same issue should also be brought to the authority’s attention.

How to Apply for Stay of Income Tax Demand

The specific submission mechanism depends on the governing Act, assessing authority and current administrative arrangements.

Review the Assessment Order and Demand Notice

Examine the assessment order, computation, demand notice and other relevant communications.

Identify the amount genuinely disputed and any portion that is accepted as payable.

File the Income Tax Appeal

Where stay is sought during a first appeal, preserve the appeal acknowledgement, grounds of appeal and supporting documents.

Under the Income-tax Act, 1961, Form 35 is relevant for the applicable first appeals.

For first appeals governed by the Income-tax Act, 2025, Form 99 is prescribed under the corresponding rules.

The normal first-appeal period for assessment or penalty matters is generally thirty days from service of the relevant notice of demand, subject to the applicable provisions and condonation of delay.

Prepare the Stay Application

A proper stay application should identify the proceeding and set out the following:

• Taxpayer’s name, PAN and relevant tax period.
• Assessment order date and statutory section.
• Demand reference and date of service.
• Total demand and disputed demand.
• Appeal details and acknowledgement.
• Summary of disputed additions or disallowances.
• Prima facie merits of the appeal.
• Financial hardship, where relevant.
• Amounts already paid or recovered.
• Specific request for stay and the conditions proposed, if any.

Submit the Application to the Appropriate Authority

The application should be submitted to the competent Assessing Officer or relevant authority through the applicable prescribed or accepted communication channel.

Retain proof of filing and monitor subsequent communications.

Merely filing a stay application does not automatically suspend recovery. Obtain and preserve the actual order granting relief.

Documents Required for an Income Tax Stay Application

Depending on the case, a stay application may be supported by:

• Assessment or reassessment order.
• Notice of demand and computation.
• Income tax return and relevant financial statements.
• Appeal acknowledgement and grounds of appeal.
• Statement of facts or equivalent appellate submissions.
• Issue-wise summary of additions under dispute.
• Details of taxes already paid and refunds adjusted.
• Relevant earlier assessment and appellate orders.
• Judicial precedents supporting important grounds.
• Bank statements, cash-flow information and other hardship evidence.
• Recovery notices or bank attachment communications, if issued.

Supporting documents should be relevant, clearly indexed and consistent with the appeal and stay application.

How to Respond to an Outstanding Income Tax Demand Online

The Income Tax e-Filing Portal provides a facility for viewing and responding to outstanding demands.

1. Visit the official Income Tax e-Filing Portal.
2. Log in using the taxpayer’s credentials.
3. Navigate to Pending Actions > Response to Outstanding Demand.
4. Review the relevant demand details.
5. Choose the appropriate response based on whether the demand is accepted, disputed in part or disputed in full.
6. Provide the required particulars and submit the response.
7. Preserve the transaction acknowledgement.

The portal may permit the taxpayer to agree or disagree with the demand in whole or in part, subject to the available options.

Important: A response disputing an outstanding demand on the portal is not necessarily equivalent to obtaining a formal stay of recovery under the applicable statutory framework.

See the official Respond to Outstanding Demand User Manual.

Can You Request Instalments Instead of Immediate Payment?

The applicable law permits the Assessing Officer to consider extension of the payment period or payment by instalments in appropriate circumstances.

For older proceedings, section 220(3) of the Income-tax Act, 1961 is particularly relevant.

The taxpayer should provide an explanation of financial circumstances and a realistic proposal for payment.

However, permission for instalments is not the same as a determination that the underlying tax demand is incorrect.

What if the Income Tax Department Adjusts a Refund Against the Demand?

Where the Department proposes or makes an adjustment of a refund against outstanding demand, the taxpayer should review the communication, amount and procedural requirements.

Under the Income-tax Act, 1961, section 245 deals with adjustment of refunds against outstanding tax liabilities, subject to the applicable statutory requirements.

The taxpayer should maintain a reconciliation of:

• Original demand raised.
• Payments made against the demand.
• Refunds adjusted.
• Other recoveries.
• Outstanding disputed amount.

Where a stay is sought, disclose the amount already secured by the Department and request suitable treatment of any further proposed recovery or refund adjustment.

What if the Stay Application Is Rejected?

If the Assessing Officer rejects the application or imposes conditions that are disputed, the taxpayer should examine the reasons recorded in the order.

In an appropriate case, the taxpayer may seek review or intervention by the relevant higher administrative authority in accordance with the applicable departmental procedure.

Matters that may support reconsideration include failure to examine prima facie merits, genuine financial hardship, relevant earlier orders, payments already made or the applicable CBDT guidelines.

Where serious procedural illegality or arbitrary recovery is alleged, constitutional remedies before the jurisdictional High Court may be considered with appropriate legal advice.

However, a writ petition is a discretionary remedy and should not be regarded as an automatic alternative to the statutory process.

Can the Department Recover Tax While the Stay Application Is Pending?

Filing a stay application does not automatically prohibit recovery.

Unless there is an effective stay or other lawful restriction, the Department may pursue recovery in accordance with the applicable law and procedure.

Possible recovery measures may include adjustments against refunds or proceedings affecting bank accounts and other assets, subject to statutory requirements.

If urgent recovery action is threatened, the taxpayer should promptly communicate the status of the pending appeal and stay application, seek a reasoned decision and consider appropriate escalation.

Stay of Demand Before the Income Tax Appellate Tribunal

Where an appeal is pending before the Income Tax Appellate Tribunal (ITAT), the taxpayer may seek stay of recovery through a separate application under the applicable statutory framework.

The ITAT stay procedure differs from an AO-stage application under section 220(6).

For relevant proceedings under the Income-tax Act, 1961, section 254(2A) deals with Tribunal stay powers, while section 253(7) provides for the stay-application fee.

Under the Income-tax Act, 2025, the corresponding appellate framework is contained in sections 361 to 364, including the provisions relevant to Tribunal proceedings.

The prescribed fee for a stay application before the ITAT is Rs. 500.

Tribunal stay may be subject to statutory conditions involving deposit or security and restrictions on its duration. The applicable requirements must be checked for the particular proceeding.

Where appropriate, a taxpayer may also request early hearing of the substantive appeal.

Important Judicial Principles on Stay of Demand

PCIT v. LG Electronics India Pvt. Ltd.

The Supreme Court clarified that CBDT administrative guidelines do not prevent the competent authority from granting stay on deposit of an amount lower than the prescribed standard percentage, depending on the individual facts.

Vento Power Projects Pvt. Ltd. v. National Faceless Assessment Centre

In September 2026, the Bombay High Court discussed the discretion available under section 220(6) and the need to consider the circumstances rather than mechanically insist upon the administrative benchmark.

These decisions reinforce the importance of a reasoned stay application dealing with the merits of the appeal, hardship, payments already made and other relevant circumstances.

Judicial decisions should always be applied after considering their facts, operative directions and relevance to the governing law.

Common Mistakes in Stay of Income Tax Demand Applications

• Assuming an appeal automatically stops recovery: A separate stay application or other appropriate protection may be necessary.
• Relying only on the 20% benchmark: The merits and relevant circumstances should also be explained.
• Treating the Budget 2026 announcement as automatically implemented: The applicable CBDT instructions must be checked.
• Failing to identify disputed and undisputed demand: A clear reconciliation is essential.
• Ignoring payments already made: Tax payments and refund adjustments should be disclosed.
• Submitting unsupported hardship claims: Relevant financial evidence strengthens the application.
• Waiting until recovery begins: Stay planning should start promptly after the assessment order is received.
• Failing to preserve the stay order: The taxpayer should retain evidence of the specific relief actually granted.

Frequently Asked Questions About Stay of Income Tax Demand

Does filing an income tax appeal automatically stop recovery?

No. An appeal does not automatically stay recovery. A separate application or other legally effective protection may be required.

Is a 20% deposit mandatory for obtaining a stay?

No fixed percentage should be treated as universally mandatory in every case. The 2017 CBDT guidance prescribed 20% as a standard administrative benchmark, but the authority must consider the applicable law, guidelines and individual circumstances.

Did Budget 2026 reduce the stay deposit to 10%?

Budget 2026-27 announced a reduction to 10% of core tax demand. The applicable implementing CBDT instructions and current departmental practice must be verified before treating this as an operationally applicable benchmark.

Can the Assessing Officer grant a stay for less than 20%?

Depending on the facts and applicable law, a lower deposit or appropriate alternative conditions may be considered. Prima facie merits, hardship, amounts already paid and judicial guidance are relevant.

What is the current section for stay of demand under the Income-tax Act, 2025?

Section 411 contains the corresponding payment and default framework, including relevant relief during pending appeals.

How many days are allowed to pay an income tax demand?

The ordinary statutory payment period is generally thirty days from service of the notice of demand, subject to applicable exceptions, lawful variations or extensions.

Can I request instalments for an income tax demand?

Yes, where the applicable law permits, the Assessing Officer may consider an application for extension of time or payment by instalments subject to appropriate conditions.

Can a Chartered Accountant prepare an income tax stay application?

Yes. Subject to applicable authorisation and representation requirements, a Chartered Accountant may assist in evaluating the demand, preparing the stay application and representing the taxpayer in relevant proceedings.

Can the ITAT stay an income tax demand?

Yes. The Income Tax Appellate Tribunal has statutory stay powers in appropriate appeals, subject to the applicable requirements concerning procedure, deposit or security and duration.

What should I do if my bank account is attached?

Urgently examine the recovery communication, demand and appeal status. Consider requesting appropriate protection, modification or lifting of attachment from the competent authority and obtain professional advice regarding available remedies.

How EzyBiz India Can Assist With Stay of Income Tax Demand

EzyBiz India Consulting LLP assists individuals, companies, NRIs and other taxpayers in income-tax assessment, reassessment, appeals, disputed tax demands and related recovery proceedings.

Our professional assistance may include:

• Review of assessment orders and demand notices.
• Reconciliation of disputed and undisputed tax demands.
• Evaluation of the merits of the assessment appeal.
• Preparation of stay applications and supporting documents.
• Examination of applicable CBDT guidelines and judicial precedents.
• Analysis of financial hardship and recovery already made.
• Representation and follow-up before the relevant authorities.
• Assistance with appropriate escalation and appellate strategy.

Related Income Tax Services and Resources

• Income Tax Assessment and Litigation Services in India
• Income Tax Appeal Against Assessment Order
• How to Respond to an Income Tax Notice
• Types of Income Tax Notices in India
• Income Tax Scrutiny Assessment
• Faceless Assessment Procedure
• Electronic Income Tax Appeals
• Direct Tax Advisory Services in India