Stay of Income Tax Demand After Assessment Order in India

An income tax assessment order may create a substantial tax demand even where the taxpayer disputes the additions made by the Assessing Officer. Filing an appeal is important, but an appeal by itself does not automatically stop recovery of the disputed demand. A separate stay strategy may therefore be required.

From 1 April 2026, the Income-tax Act, 2025 applies to the new tax-year framework. Under the new Act, notice of demand is governed by section 289, payment and default provisions are contained in section 411, and first appeals are governed by sections 356 to 360. Proceedings relating to earlier assessment years may continue under the Income-tax Act, 1961 under the applicable transition provisions.

This guide explains how a taxpayer can seek stay of an income tax demand after an assessment order, the relevance of the 20% CBDT benchmark, the factors considered in a stay application and the remedies available if recovery action continues. For end-to-end assistance, see our Income Tax Assessment and Litigation Services in India.

What Is a Stay of Income Tax Demand?

A Stay Temporarily Restrains Recovery of the Disputed Demand

A stay of demand is relief under which recovery of the disputed tax demand is kept in abeyance, wholly or partly, while the taxpayer’s appeal or other proceeding remains pending, subject to the conditions imposed by the competent authority.

Stay Does Not Mean the Assessment Order Is Cancelled

A stay protects the taxpayer from immediate recovery to the extent granted. It does not by itself delete the addition, cancel the assessment order or decide the appeal on merits.

The Undisputed Portion Should Be Identified Separately

If part of the demand is accepted and part is disputed, the taxpayer should clearly separate the undisputed amount from the amount challenged in appeal. This distinction is important while preparing both the appeal and the stay application.

Notice of Demand and the 30-Day Payment Timeline

Section 289 Governs Notice of Demand Under the New Act

Under the Income-tax Act, 2025, a notice of demand is issued under section 289. The Income-tax Rules, 2026 prescribe Form 103 as the current notice of demand. Under the earlier law, the corresponding provision was section 156 and the familiar demand form was Form 7.

The Normal Payment Period Is 30 Days

The current law generally requires the amount specified in the notice of demand to be paid within 30 days of service, unless a shorter period is validly specified in accordance with the Act.

Ignoring the Demand Can Trigger Interest and Recovery Consequences

If the demand is not paid within the prescribed or extended period and no effective stay or other relief operates, the taxpayer may be treated as an assessee in default and interest and recovery consequences may follow under the applicable provisions.

Official guidance on the current demand form is available through the Income Tax Department’s Form 103 Guidance Note.

Does Filing an Appeal Automatically Stay the Tax Demand?

No Automatic Stay Arises Merely Because an Appeal Is Filed

One of the most important practical points is that filing an appeal against the assessment order does not by itself suspend the tax demand. The demand continues to exist unless it is stayed, modified, reduced or otherwise dealt with under the applicable law.

The Appeal and Stay Application Should Be Planned Together

Where immediate recovery would create difficulty, the taxpayer should not wait until recovery action begins. The appeal and stay application should normally be prepared together so that the disputed demand, grounds of challenge and requested protection are consistent.

Respond to the Outstanding Demand on the e-Filing Portal

The e-Filing portal allows taxpayers to view outstanding demands and either agree, partially agree or disagree with the demand. Where the demand is disputed, the portal response should be consistent with the appeal, rectification and stay strategy.

The official process is explained on the Response to Outstanding Demand page.

Legal Basis for Stay of Demand Under Section 411

Section 411 Replaces the Familiar Section 220 Framework

For cases governed by the Income-tax Act, 2025, section 411 contains the principal provisions dealing with payment of tax demand and when an assessee may be treated as being in default. The familiar corresponding framework under the Income-tax Act, 1961 was section 220.

The Assessing Officer Can Grant Relief During Pendency of Appeal

Where an appeal has been filed, section 411 permits the Assessing Officer, subject to the applicable conditions and discretion under the law, to treat the assessee as not being in default in respect of the amount disputed in appeal while the appeal remains pending.

Time for Payment or Instalments May Also Be Considered

The statutory framework also permits the Assessing Officer, on an appropriate application made within the relevant time, to extend the time for payment or allow payment by instalments subject to conditions.

Is 20% of the Disputed Demand Mandatory for Getting a Stay?

CBDT Guidance Uses 20% as a Standard Benchmark at the First Appeal Stage

CBDT’s administrative stay guidance, as modified by the Office Memorandum dated 31 July 2017, uses 20% of the disputed demand as the standard benchmark where the demand is contested before the first appellate authority.

The 20% Figure Is an Administrative Benchmark, Not the Tax Demand Itself

The 20% figure should not be confused with the taxpayer’s final liability. It is a benchmark used in the administrative stay framework while the appeal is pending. The appeal still determines whether the disputed addition and tax demand ultimately survive.

The Facts of the Case Still Matter

A stay application should not merely state that 20% will or will not be paid. The taxpayer should explain the merits of the appeal, financial hardship, amounts already recovered or adjusted, earlier decisions on the same issue and other relevant circumstances. Depending on the facts and applicable guidance, the authority may consider the appropriate conditions for stay.

The Income Tax Department’s current overview of the stay framework can be reviewed in its Appeals and Revision Guidance.

What Factors Strengthen a Stay of Demand Application?

Prima Facie Merits of the Appeal

The stay application should briefly demonstrate why the disputed additions are arguable or unsustainable. Relevant factors may include documentary evidence, settled legal principles, earlier appellate orders or a clear factual error in the assessment.

Financial Hardship and Cash-Flow Impact

Where immediate recovery would materially affect working capital, salaries, statutory payments, business continuity or personal financial capacity, the hardship should be explained with supporting financial information rather than stated in general terms.

Balance of Convenience and Recovery Already Made

The application should disclose taxes already paid, refunds already adjusted, amounts recovered, bank attachments or other payments connected with the demand. This helps the authority evaluate the effective amount already secured by the Department.

Consistency With Earlier or Higher-Appellate Decisions

If the same issue has been decided in the taxpayer’s favour in an earlier year or by a jurisdictional court or appellate authority, the relevant decision should be clearly identified and attached where appropriate.

How to Draft a Strong Stay of Income Tax Demand Application

Start With the Assessment and Demand Particulars

The application should state the PAN, tax year or assessment year, date of assessment order, section under which the order was passed, assessed income, returned income, total demand, amount disputed and appeal filing details.

Summarise the Disputed Additions

Provide a short issue-wise summary of the additions under challenge. The stay application is not a substitute for the detailed appeal, but the authority should be able to understand why the demand is disputed.

State the Grounds for Stay Clearly

Explain prima facie merits, hardship, balance of convenience, earlier favourable decisions, payments already made and any other relevant facts. Avoid a generic request stating only that the appeal is pending.

Make a Specific Prayer

The concluding request should clearly state whether the taxpayer seeks complete stay, stay subject to a specified payment, adjustment of amounts already recovered, instalments or another practical arrangement until disposal of the first appeal.

Assessment and Demand Documents

Attach the assessment order, notice of demand, tax computation and any relevant rectification or demand response already filed.

Appeal Documents

Keep evidence of filing the appeal, acknowledgement, grounds of appeal and statement of facts or equivalent appellate documents together with the stay application.

Financial and Merits Documents

Where hardship is relied upon, attach suitable bank statements, cash-flow information, financial statements or other relevant evidence. Where the merits are strong because of earlier orders or judicial precedents, attach the most relevant material rather than a large unindexed case-law bundle.

First Appeal and Form 99 Under the Income-tax Act, 2025

First Appeals Are Governed by Sections 356 to 360

The Income-tax Act, 2025 consolidates the first appellate framework in sections 356 to 360. Section 357 specifies appealable orders before the Commissioner (Appeals), while section 358 deals with form of appeal and limitation.

Form 99 Replaces Form 35 for New-Act Appeals

Under the Income-tax Rules, 2026, Form 99 is the prescribed electronic form for an appeal to the Joint Commissioner (Appeals) or Commissioner (Appeals) in cases governed by the Income-tax Act, 2025. It corresponds to Form 35 under the earlier rules.

The Normal Appeal Period Is 30 Days

For an appeal relating to assessment or penalty under the new Act, section 358 generally requires the appeal to be presented within 30 days from service of the notice of demand, subject to the statutory power to condone delay where sufficient cause is shown.

The current form and filing framework is explained in the official Form 99 FAQs.

Part Payment, Instalments and Adjustment of Refunds

Part Payment Should Be Linked to the Stay Strategy

If the taxpayer proposes to pay part of the disputed demand, the amount and timing should be stated clearly in the stay application. Any tax already paid after assessment should also be included in the computation of the amount effectively secured.

Instalments May Be Requested in Appropriate Cases

Where immediate lump-sum payment would cause genuine hardship, an application may request additional time or payment by instalments, subject to the statutory framework and conditions imposed by the Assessing Officer.

Refund Adjustment Can Affect the Effective Recovery Percentage

The e-Filing portal may reflect outstanding demand that can be adjusted against a refund. If a refund has already been adjusted or is proposed to be adjusted against the disputed demand, this should be specifically considered while computing the amount already recovered and while seeking stay protection.

What if the Stay Application Is Rejected?

Read the Reasons Given in the Stay Order

A rejection should be examined to determine whether the authority considered the merits, hardship, amounts already paid and relevant CBDT guidance. A reasoned review is necessary before deciding the next step.

Approach the Higher Administrative Authority Where Appropriate

Depending on the facts, the taxpayer may seek review or intervention from the appropriate higher income tax authority in accordance with the applicable administrative framework, particularly where the stay request has not been considered on relevant factors.

Consider Writ Remedy in Exceptional Cases

Where recovery action is arbitrary, jurisdictionally flawed or contrary to binding law and no effective alternative relief is available in time, constitutional remedy before the High Court may be considered with appropriate legal advice. Writ jurisdiction is discretionary and should not be treated as a routine substitute for statutory remedies.

Can Recovery Continue While the Stay Request Is Pending?

Do Not Assume Recovery Is Automatically Suspended

Merely filing a stay application does not necessarily mean that all recovery action is automatically frozen. The taxpayer should monitor the status of the application and seek a clear written or portal-based stay order wherever possible.

Respond Promptly to Recovery Communications

If the Department issues recovery communications, proposes bank attachment or adjusts a refund while the stay request or appeal is pending, the taxpayer should immediately place the pending application, appeal details and amounts already paid on record.

Maintain a Complete Chronology

Keep a dated record of the assessment order, demand notice, appeal, stay application, reminders, payments, refund adjustments, recovery communications and orders passed on the stay request. This chronology becomes important if the matter must be escalated.

Stay of Demand Before the Income Tax Appellate Tribunal

ITAT Stay Becomes Relevant After the First Appellate Stage

Where an appeal is pending before the Income Tax Appellate Tribunal, the assessee may seek stay of the disputed demand from the Tribunal in accordance with the statutory and procedural framework applicable to ITAT proceedings.

A Separate Stay Application Is Required

A stay before the ITAT is not automatic merely because an appeal to the Tribunal has been filed. The stay petition should set out the demand, payments already made, status of the appeal, merits, hardship and reasons requiring protection from recovery.

The Current Stay Application Fee Is Rs. 500

The Income-tax Rules, 2026 provide that an application for stay of demand before the Appellate Tribunal is accompanied by a fee of Rs. 500. The statutory rules governing the duration and conditions of an ITAT stay should be reviewed for the particular case.

Old Act and New Act: Which Stay Provisions Apply?

Tax Year 2026-27 Onwards Generally Falls Under the New Act

For proceedings governed by the Income-tax Act, 2025, the current section numbers, forms and procedures should be used, including section 289 for notice of demand, section 411 for payment and default, and Form 99 for first appeals.

Earlier Assessment Years May Continue Under the 1961 Act

The Income Tax Department’s transition guidance clarifies that proceedings initiated on or after 1 April 2026 relating to a tax year beginning before 1 April 2026 continue under the repealed Act in accordance with the savings provisions. Thus, an appeal filed after 1 April 2026 for Assessment Year 2026-27 or an earlier year may still be governed by the Income-tax Act, 1961.

Do Not Mix Old and New Forms in the Same Proceeding

Before preparing the appeal or stay application, confirm which Act governs the underlying assessment. Using section 411 and Form 99 in a proceeding that legally continues under section 220 and Form 35, or vice versa, can create avoidable procedural confusion.

The official transition position is explained in the Income Tax Department’s FAQs on Interplay and Transition.

Common Mistakes in Stay of Demand Applications

Assuming the Appeal Automatically Stops Recovery

This is the most common error. The taxpayer may file a strong appeal but still face recovery action if no separate stay relief is sought or granted.

Focusing Only on the 20% Figure

A stay application should not become a one-line discussion about a percentage. It should explain merits, hardship, balance of convenience, earlier payments and the precise relief requested.

Failing to Disclose Amounts Already Recovered

Tax payments, refund adjustments and other recoveries should be reconciled with the outstanding demand. Failure to do so can result in the authority considering an outdated gross demand figure.

Filing the Stay Application Too Late

Waiting until attachment or recovery action begins reduces the time available to obtain relief. Where the demand is disputed, stay planning should start immediately after review of the assessment order and demand notice.

Practical Checklist for Seeking Stay of Income Tax Demand

Before Filing the Stay Application

• review the assessment order and notice of demand;
• identify the total, disputed and undisputed demand;
• confirm which Income-tax Act governs the proceeding;
• prepare and file the appeal within the applicable limitation period;
• reconcile taxes already paid and refunds already adjusted; and
• collect documents supporting merits and financial hardship.

After Filing the Stay Application

• retain acknowledgement and proof of submission;
• monitor the e-Filing portal and recovery communications;
• comply with conditions imposed in the stay order;
• keep evidence of any part payment or instalment;
• follow up where the application remains undecided; and
• maintain a complete chronology until disposal of the appeal.

Frequently Asked Questions

Does filing an income tax appeal automatically stay the demand?

No. Filing an appeal does not automatically suspend recovery of the disputed demand. A separate stay application or other appropriate relief may be required.

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

The payment, default and stay-related framework is principally contained in section 411 of the Income-tax Act, 2025. It corresponds broadly to section 220 of the Income-tax Act, 1961.

Is payment of 20% compulsory for every stay application?

CBDT administrative guidance uses 20% of the disputed demand as the standard benchmark at the first appeal stage. However, a stay application should still be considered with reference to the facts, merits, hardship, amounts already recovered and applicable legal or administrative principles.

What is the new appeal form after 1 April 2026?

For appeals governed by the Income-tax Act, 2025 and Income-tax Rules, 2026, Form 99 is the prescribed first-appeal form corresponding to the earlier Form 35.

How long do I have to file the first appeal?

For an assessment or penalty appeal governed by section 358 of the Income-tax Act, 2025, the normal limitation period is 30 days from service of the notice of demand, subject to condonation where sufficient cause is established.

Can I request instalments instead of paying the entire demand?

Yes, the applicable statutory framework allows the Assessing Officer to consider extension of time or payment by instalments in appropriate cases, subject to conditions.

What if my income tax refund is adjusted against the disputed demand?

The amount adjusted should be reconciled and disclosed in the stay application and appeal records. The taxpayer can also use the e-Filing portal’s outstanding-demand facility to respond to a demand that is disputed in full or in part.

Can the ITAT grant stay of income tax demand?

Yes. Where an appeal is pending before the Income Tax Appellate Tribunal, the assessee may file a separate stay application before the Tribunal subject to the applicable statutory conditions and procedure.

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Prepared By: EzyBiz India Consulting LLP

Reviewed By:
Anil Agrawal, Chartered Accountant
Founder, EzyBiz India Consulting LLP
20+ Years of Experience in Tax, Regulatory and Business Advisory

Last Updated: 6 September 2026

Disclaimer:
This article is intended for general informational purposes only and does not constitute legal, tax or professional advice. Stay of demand is discretionary and depends on the governing Act, nature of the assessment, amount disputed, stage of appeal, facts of the case, amounts already paid or recovered, financial position and applicable judicial and administrative guidance. The Income-tax Act, 2025 applies from 1 April 2026, while proceedings relating to earlier periods may continue under the Income-tax Act, 1961 under the applicable transition provisions. Taxpayers should review the actual assessment order, notice of demand and applicable law and obtain professional advice before filing an appeal, stay application or taking any recovery-related action.