• Notification Date: 27-01-2022
• Notification No: N/A

Harmonization of Income Tax Laws with Insolvency Code is required

The Insolvency and Bankruptcy Code (IBC) has been a successful piece of legislation for over 5 years. But since IBC is a relatively new law, there are some key issues. These issues are related to the lack of synchronization with other laws, such as tax laws.

IBC provides a moratorium to resolve the conflicting claims and compliances under various laws. This moratorium is related to various actions against the corporate debtor during the corporate insolvency and resolution process (CIRP).

Under normal circumstances, the tax authorities are allowed to adjust their refund that is due to a taxpayer against other pending tax demands. But if the taxpayer is undergoing CIRP, such adjustments will not be allowed. The IBC provides the code’s provision which overrides other laws.

The tax authorities set off refunds for the corporate debtors against pending tax demands. They reject the stay application that is filed by the corporate debtors since the tax authorities often fail to recover tax dues.

If any tax is found to be payable after the resolution process gets approved by the corporate debtor, those claims will not be maintained. The introduction of the IBC is definitely a right move in this regard. People are expecting that this new step will help to resolve some of the issues related to the insolvency process in the upcoming budget.