Parliamentary panel flags persistent tax arrears amidst CBDT's Rs 20 lakh crore cleanup

A parliamentary standing committee on finance has raised red flags over the mountain of legacy tax arrears, both direct and indirect, while acknowledging a significant reduction of over Rs 20 lakh crore in collectible tax demand achieved by the Central Board of Direct Taxes (CBDT) in the past nine months.

The panel, however, stressed the need for continued efforts and sought deeper reforms in tax administration to address systemic inefficiencies and prevent hardship to honest taxpayers.

The reduction in collectible tax had come after the parliamentary panel had flagged the issue in its previous report. The committee had previously noted that as of February 14, 2025, total cumulative tax arrears stood at a staggering Rs 48.73 lakh crore. Of this, Rs 43.07 lakh crore pertained to direct taxes, with Rs 10.55 lakh crore pending for over five years, some dating as far back as the mid-1990s. An additional Rs 5.65 lakh crore in indirect tax arrears remained unresolved as of December 2024.

CBDT’s cleanup drive

Responding to the Committee's earlier concerns, the Department of Revenue submitted that proactive steps have led to a steep decline in net collectible demand—from Rs 33.75 lakh crore as of June 30, 2024, to Rs 13.47 lakh crore by March 31, 2025. This reduction of Rs 20.28 lakh crore was achieved through “targeted verification, digital rationalisation, and improved coordination” among assessing officers.

The CBDT in its reply to the committee, said that over 1.12 crore outdated demand entries involving 77.39 lakh PANs - amounting to Rs 3,338.40 crore - were extinguished during this period. Duplicate entries uploaded during digitisation were reviewed, leading to a further Rs 25,834.93 crore being struck off in March 2025 alone.

Highlighting its efforts, the CBDT said it deployed its Income Tax Business Application (ITBA) to tag and reassess the recoverability of tax dues exceeding Rs one crore. Letters were issued to regional officers to cross-verify digitised demands against physical records. The Demand Facilitation Centre (DFC) also flagged potentially duplicate demands for prompt redressal.

The Committee, headed by BJP MP Bhartuhari Mahtab, said that substantial arrears still remain. “The committee desires that continuous and time-bound efforts must be made to further bring down the outstanding demand. The Committee also find that no specific data on indirect tax arrears has been furnished by CBIC. The Committee desires that such details be provided at the time of submission of the Action Taken Statement,” the panel report said.

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