Skip to content

CS Executive · Tax Laws and Practice · Direct Tax at a Glance

Under the Income-tax Act, 2025, a penalty of Rs. 25,000 was levied and paid on Sunrise Pvt Ltd for default in payment of a tax demand. Later, a final order wholly reduced the tax demand to nil. What follows under section 412?

The penalty is cancelled and the Rs. 25,000 paid is refunded. Section 412(5) provides that when a final order wholly reduces the tax in respect of whose default the penalty was levied, the penalty falls away and any amount paid must be refunded.

  1. AThe penalty stays, since it was validly levied at that time
  2. BThe penalty is reduced to Rs. 10,000
  3. CThe penalty is cancelled and the amount paid is refundedCorrect
  4. DThe penalty is adjusted against future tax only, with no refund

Explanation

Section 412(5) says that where a final order has wholly reduced the tax whose default led to the penalty, the penalty is cancelled and the amount paid is refunded. Partial reduction is not covered by this rule, and the Rs. 10,000 figure belongs to section 467.

Did you get it right without looking?

One question tells you little. A timed set on Direct Tax at a Glance shows your real accuracy, how long you take and where you lose marks.

Practise Direct Tax at a GlanceFree diagnostic mock

More Direct Tax at a Glance questions