Tax Recovery, Assessee in Default and Tax Recovery Officer: Income Tax Act 2025

Under the Income Tax Act 2025, tax stated in a notice of demand must be paid within 30 days of service (section 411(1)). If it is not, you owe simple interest at 1% per month or part of a month, you are deemed to be in default, and the Assessing Officer can levy a penalty. A Tax Recovery Officer (TRO) can then issue a certificate and recover the dues by attaching and selling property or appointing a receiver (section 413).

This guide covers sections 411 to 415 and the recovery rules (rules 224 to 226) as amended by the Finance Act 2026, effective 1 April 2026 (tax year 2026-27 onwards). It explains what the demand clock looks like, how interest and penalty are worked out, what a TRO can and cannot do, and which routes exist to pause or reduce recovery. For how a demand arises in the first place, see our guide to the notice of demand.

How much time do I get to pay a tax demand?

A notice of demand is the notice under section 289 that tells you how much tax, interest, penalty or other sum you must pay. Any amount in it (other than advance tax) must be paid at the place and to the person named in the notice within:

• 30 days of service of the notice (section 411(1)(a)); or
• a shorter period stated in the notice, if the Assessing Officer (AO) believes the full 30 days would be detrimental to revenue. This needs the previous approval of the Joint Commissioner (section 411(1)(b)).

You can ask the AO for more time or for instalments, but the application must be made before the due date in section 411(1) expires (section 411(5)). The AO decides the conditions.

What interest do I pay if I miss the 30 days?

Simple interest at 1% for every month or part of a month runs from the day after the 30-day period ends until the day you pay (section 411(3)(a)). A part month counts as a full month. Interest is not charged on a penalty demand under section 439 up to the date of the assessment or reassessment order passed under section 359 or, where the Dispute Resolution Panel gave directions under section 275, under section 363 (section 411(3)(b)).

If interest is already charged on the same amount for the same period under section 398(3) on an intimation under section 399, section 411(3) interest is not charged again (section 411(4)).

Worked example 1: interest on a late-paid demand (tax year 2026-27)

Assumptions: a notice of demand for Rs 2,40,000 is served on 1 March 2027. No instalment or extension is granted. The assessee pays on 20 July 2027.

Step	Working	Result
Last day to pay	30 days from service	31 March 2027
Interest starts	Day after the 30 days end	1 April 2027
Interest ends	Date of payment	20 July 2027
Months or part months	April, May, June, July (part)	4
Interest	Rs 2,40,000 x 1% x 4	Rs 9,600

Paying on 30 April instead of 20 July would have cost Rs 2,400 (one month). The part-month rule makes paying a few days late as expensive as a full month.

When am I treated as an assessee in default?

If the amount is not paid within the time in section 411(1), or within the time extended under section 411(5), you are deemed to be in default (section 411(10)). Two related rules:

• Instalments: if you default on any one instalment, you are in default on the whole outstanding amount, and the remaining instalments are treated as due on the same date as the missed one (section 411(11)).
• Pending appeal: a demand stays valid until the last appellate authority or proceeding is disposed of (section 411(2)). Filing an appeal does not by itself stop the default. Where an appeal is presented under section 356 or 357, the AO may, at his discretion and on conditions he imposes, treat you as not in default on the disputed amount while the appeal is undisposed of (section 411(12)).

What penalty can be levied for being in default?

Under section 412, an assessee in default (or deemed in default) pays, on top of the arrears and the section 411(3) interest, a penalty of:

• such amount as the AO directs; and
• for a continuing default, such further amounts as the AO directs from time to time.

Safeguards in the section:

• The total penalty cannot exceed the tax in arrears (section 412(2)).
• No penalty without a reasonable opportunity of being heard, and none if you prove the default was for good and sufficient reasons (section 412(3)).
• Paying the tax later does not wipe out a penalty for the default that already happened (section 412(4)).
• If a final order wholly reduces the tax in respect of which the penalty was levied, the penalty is cancelled and any amount paid is refunded (section 412(5)).

Worked example 2: the penalty ceiling (tax year 2026-27)

Assumptions: tax in arrears is Rs 1,80,000. After a hearing, the AO directs Rs 50,000 as penalty. The default continues and the AO later directs a further Rs 60,000. He then considers a third direction of Rs 80,000.

Direction	Amount	Running total	Within cap of Rs 1,80,000?
First penalty under 412(1)(a)	Rs 50,000	Rs 50,000	Yes
Further penalty under 412(1)(b)	Rs 60,000	Rs 1,10,000	Yes
Third direction proposed	Rs 80,000	Rs 1,90,000	No, exceeds by Rs 10,000

Total penalty cannot go past Rs 1,80,000, so at most Rs 70,000 (Rs 1,80,000 minus Rs 1,10,000) can be added. Interest under section 411(3) is separate and is not counted against this cap, because the cap is tied to the tax in arrears.

What is a Tax Recovery Officer and what can the TRO do?

The Tax Recovery Officer is the officer who carries out recovery. Once you are in default, the TRO can draw up a signed statement, called the certificate, specifying the arrears (section 413(1)). The prescribed form is Form No. 153 (rule 224). The TRO then recovers the amount by one or more of these modes:

Mode (section 413(1))	What it means
(a) Movable property	Attachment and sale of the assessee's movable property (rule 225(1)(d) says this includes growing crops)
(b) Immovable property	Attachment and sale of the assessee's immovable property
(c) Receiver	A receiver is appointed to manage the movable and immovable properties

From 1 April 2026, arrest and detention in prison is no longer a mode of recovery. The Finance Act 2026 replaced the old clauses (c) and (d) with the single receiver clause shown above.

More points that matter in practice:

• The TRO may use any of these modes whether or not recovery by another mode has already been tried (section 413(2)).
• You cannot dispute the correctness of the certificate on any ground before the TRO (section 413(3)). The place to challenge the demand is the assessment, rectification or appeal route.
• The TRO may cancel the certificate, or correct a clerical or arithmetical mistake in it (section 413(4)).
• Your property for recovery includes property you transferred, otherwise than for adequate consideration, on or after 1 June 1973 to your spouse, minor child, son's wife or son's minor child, and which they hold. Property given to a minor child or a son's minor child stays included even after the child turns 18, for arrears relating to periods before that date (section 413(5)).

Which Tax Recovery Officer handles my case?

Section 414(1) allows recovery by the TRO whose jurisdiction covers either:

• the place where you carry on business or profession, or its principal place; or
• the place where you reside, or where any of your movable or immovable property is situated.

Jurisdiction is whatever the Board, or an authorised income-tax authority not below the rank of Commissioner, has assigned. If you hold property in the area of more than one TRO, the TRO who drew up the certificate can send the certificate (or a certified copy stating the part to be recovered) to another TRO. This happens when the full amount cannot be recovered from property in his own area, or when he thinks it is necessary to expedite or secure recovery (section 414(2)). The other TRO then proceeds as if he had drawn up the certificate.

What happens after the certificate is issued?

Rule 225 sets out the procedure. The main steps are:

1. Notice to pay (rule 225(2)): the TRO serves a notice asking you to pay the certificate amount within 15 days of service.
2. Waiting period (rule 225(3)(a)): no step in execution is taken until those 15 days pass.
3. Early attachment (rule 225(3)(b)): if the TRO is satisfied, for reasons recorded in writing, that you are likely to conceal, remove or dispose of movable property and that recovery would be delayed, he can attach it at any time. If you furnish security to his satisfaction, that attachment is cancelled from the date the security is accepted (rule 225(3)(c)).
4. Recovery (rule 225(4)): if you do not pay in time, the TRO realises the amount through attachment and sale of movable or immovable property, or by a receiver.
5. Costs (rule 225(5)): the certificate recovers the section 411(3) interest on the tax, penalty or other sum, plus charges for serving notices, warrants and other processes and for the recovery proceedings.

During this stage:

• After the 15-day notice is served, you cannot mortgage, charge, lease or otherwise deal with your property without the TRO's permission (rule 225(16)(a)). Once property is attached, a private transfer or any payment to you contrary to the attachment is void against claims enforceable under the attachment (rule 225(16)(b)).
• Property exempt from attachment in civil-court decree execution under the Code of Civil Procedure, 1908 is also exempt here, and the TRO's decision on what is exempt is conclusive (rule 225(10)).
• A sale is stopped if, before the lot is knocked down, the arrears and costs, including the costs of sale, are tendered to the officer conducting the sale, or proof is given that they have been paid to the TRO who ordered the sale (rule 225(15)(c)).

Can the department recover from my bank account, salary or debtors?

Yes. Section 416 gives the Assessing Officer (and, once a certificate exists, the TRO) extra modes of recovery, in addition to those in section 413:

• Salary deduction: the officer can require an employer to deduct arrears from later salary payments and pay them to the Central Government. Salary exempt from attachment under section 60 of the Code of Civil Procedure, 1908 is left out (section 416(3) and (4)).
• Notice to a third party: anyone who owes you money or holds money for you, such as a bank, can be told to pay the officer enough to clear the arrears. A copy goes to you, and to all joint holders for a joint account, whose shares are presumed equal until proved otherwise (section 416(5)(a) to (d)).
• If the third party ignores it: that person is deemed an assessee in default for the amount, and paying you after the notice makes them personally liable up to the lower of what they owed you or your arrears (section 416(5)(k) and (l)). A third party can object on oath that it holds or owes nothing (section 416(5)(g)).
• Distraint: sale of movable property by distraint, only if a Commissioner-rank authority has authorised it (section 416(7)).

How is attached property sold, and can the sale be undone?

For immovable property, rule 225 requires a proclamation of sale and a public auction. Without your written consent, the sale cannot happen until at least 30 days after the proclamation is affixed on the property or in the TRO's office, whichever is later (rule 225(55)). The buyer pays a 25% deposit immediately and the full price by the 15th day after the sale (rule 225(57)). For movable property the minimum gap is 15 days from affixing the proclamation in the TRO's office, except for perishable goods or where keeping them costs more than their value (rule 225(40)).

Within 30 days of the sale, you or anyone affected can apply to set it aside by depositing the proclaimed recovery amount with interest at 15% a year from the proclamation date, plus 5% of the purchase money to the buyer as penalty (rule 225(60)). A sale can also be challenged for non-service of notice or irregularity under rule 225(61).

How can I stop or pause recovery?

Route	Where in the law	What it does
Ask for time or instalments	Section 411(5)	AO may extend time or allow instalments; apply before the 30-day due date ends
Appeal and request for no-default treatment	Section 411(12)	AO may treat you as not in default on the disputed amount while the appeal is pending
Time from the TRO	Section 415(1)	TRO may grant time for payment and must stay recovery until that time expires
Demand reduced and further proceeding pending	Section 415(2)(a)	TRO must stay recovery of the reduced part for as long as the further proceeding is pending
Reduced demand becomes final	Section 415(2)(b)	TRO must amend or cancel the certificate
Rectification of a mistake	Rule 226	A TRO authorised by the Chief Commissioner or Commissioner can exercise the section 287 rectification power, alongside the AO, for the order behind the certificate
Waive or reduce interest	Section 411(7) to (9)	Senior tax authorities can reduce or waive interest on application in hardship cases (see below)

For the appeal route itself, see our guide to income tax appeals, and for mistakes in the order, rectification of mistake.

Can the 1% monthly interest be reduced or waived?

Yes, in limited cases. The Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner may reduce or waive the interest under section 411(3) on your application if he is satisfied that all three conditions hold (section 411(7)):

1. paying the interest has caused or would cause genuine hardship;
2. the default was due to circumstances beyond your control; and
3. you have co-operated in any inquiry relating to the assessment or any recovery proceeding.

The order accepting or rejecting the application, in full or in part, must be passed within 12 months from the end of the month in which the application is received (section 411(8)). A rejection requires giving you a chance to be heard first (section 411(9)).

If the demand later changes because of an order under section 287, 288, 359, 363, 365(10), 368 or 378, interest is recomputed. A reduction in the demand reduces the interest and any excess paid is refunded. If a later order increases the amount, interest runs on the increased amount from the day after the period in the first notice of demand ended (section 411(6)).

Does tax stuck in a country that blocks remittance count as default?

No. If income arose outside India in a country whose laws prohibit or restrict remittance to India, the AO must not treat you as in default for the part of the tax attributable to income that cannot be brought into India, and must continue that treatment until the restriction ends (section 411(13)). Income counts as brought into India if it was, or could have been, used for expenditure actually incurred outside India, or if it has been brought into India in any form (section 411(14)).

Real-life examples

Ravi, a trader who ignored a demand

Ravi runs a hardware shop in Indore. An assessment order leaves him with a demand of Rs 3,00,000. He sets the notice aside, assuming his pending appeal means he does not have to pay. Under section 411(2) the demand stays valid during the appeal, and without an order under section 411(12) he is deemed in default after 30 days. The AO charges interest and, after hearing him, can levy a penalty under section 412. A TRO then draws up a Form 153 certificate and serves a 15-day notice. Had Ravi applied to the AO for instalments before the 30 days ended, or asked for no-default treatment because his appeal was filed, he would have had a route to pause this.

Meena, whose demand was cut on appeal

Meena, a consultant in Pune, has a certificate drawn up for Rs 4,00,000. Her appeal then succeeds in part and the demand is reduced to Rs 2,50,000, but the department takes the order further. Under section 415(2)(a), the TRO stays recovery of the Rs 1,50,000 reduction while the further proceeding is pending. Once that order becomes final and conclusive, section 415(2)(b) requires the TRO to amend the certificate (or cancel it, if nothing remains).

Suresh, who gifted a flat to his wife

Suresh is in default and has few assets in his own name. Earlier, he had transferred a flat to his wife without adequate consideration. Section 413(5)(a) treats that flat as his property for recovery, so the TRO can attach it. If the same flat had been gifted to his minor daughter, it would continue to be counted even after she turns 18, for arrears relating to periods before that date (section 413(5)(b)).

Common mistakes

• Assuming an appeal stops recovery automatically. The demand stays valid (section 411(2)) and you can be in default unless the AO treats you otherwise under section 411(12).
• Asking for instalments after the due date. The application must be made before the section 411(1) due date expires (section 411(5)).
• Missing a single instalment. It makes the whole outstanding amount due (section 411(11)).
• Trying to contest the certificate with the TRO. Section 413(3) bars disputing its correctness. Use appeal or rectification instead.
• Moving or selling assets after the 15-day notice. Dealing with property without the TRO's permission is restricted by rule 225(16).
• Ignoring a penalty hearing notice. A penalty needs a reasonable opportunity of being heard, and the good-and-sufficient-reason defence is available only if you put your case (section 412(3)).

Quick reference

Item	Rule	Reference
Time to pay demand	30 days from service (or shorter with Joint Commissioner approval)	Section 411(1)
Interest on late payment	1% per month or part, simple	Section 411(3)
Application for instalments or time	Before the 30-day due date expires	Section 411(5)
Deemed in default	Not paid within time	Section 411(10)
Interest waiver order	Within 12 months from end of month of application	Section 411(8)
Penalty ceiling	Total cannot exceed tax in arrears	Section 412(2)
Certificate form	Form No. 153	Rule 224
Notice after certificate	Pay within 15 days of service	Rule 225(2)

Where this is in the Act

• Section 411: when tax is payable, interest, instalments, interest waiver and when an assessee is deemed in default
• Section 412: penalty when tax is in default
• Section 413: certificate by the Tax Recovery Officer and modes of recovery
• Section 414: which Tax Recovery Officer recovers, and transfer of certificates
• Section 415: stay of proceedings, and amendment or cancellation of the certificate
• Rule 224: Form No. 153 (statement under sections 413 and 414)
• Rule 225: procedure for recovery
• Rule 226: TRO exercising rectification powers under section 287

For a CA firm, the hard part is knowing which client has a demand running, when the 30 days end, and whether an instalment or appeal request went in on time. Finexo's practice management software tracks these dates across your client book and reminds you before they pass. It does not file applications or appeals for you.

This article is general information on the law as amended by the Finance Act 2026 and is not tax advice. Check your own notice and facts, or consult a chartered accountant, before acting.