Collection & Recovery of Tax — Law of Taxation Notes

Collection & Recovery of Tax

Assessing a tax is one thing; actually getting the money from a reluctant taxpayer is another. The Act therefore arms the department with a recovery machinery as strong as a civil court’s decree — it can attach your bank account, your salary, and your property until the demand is paid.

How tax is collected and recovered

Tax reaches the government by three main routes — TDS/TCS (deducted/collected at source, Topic 13), advance tax (paid during the year), and self-assessment/regular assessment tax (paid on demand). When tax remains unpaid after a demand notice (s.156), the assessee becomes an assessee-in-default, and the recovery machinery starts.

Modes of recovery (ss.220–232). A Tax Recovery Officer (TRO) draws up a certificate of the arrears and may recover by:

1. Attachment and sale of the defaulter’s movable and immovable property;
2. Arrest and detention of the defaulter in prison;
3. Appointing a receiver for the management of his property;
4. Garnishee proceedings (s.226(3)) — requiring a third party who owes money to the assessee (a bank, a debtor, an employer) to pay it directly to the department;
5. Recovery through the State as an arrear of land revenue.

Interest is charged on late payment (s.220(2)), and the AO may treat an amount as not in default while an appeal is pending, on terms. The powers mirror the Second and Third Schedules to the Act, which adopt civil-court-style attachment procedure.

🧩 WORKED EXAMPLE — Garnishee recovery from a bank

Facts. ‘A’ owes ₹2,00,000 tax after a demand notice and does not pay. He has ₹2,50,000 in a bank account.

Rule. Under s.226(3), the AO/TRO may issue a garnishee notice to a person (here the bank) holding money for the assessee, requiring it to pay that money to the department towards the arrears.

Apply. The bank, on receiving the notice, must pay ₹2,00,000 out of ‘A’s account to the department; if it fails, it becomes personally liable.

Conclusion. The tax is recovered directly from the bank under the garnishee power — one of the strongest and quickest recovery modes.

In Simple Terms: Tax comes in through TDS, advance tax, and payment on demand. If you still do not pay after the demand notice, you are a defaulter, and the Tax Recovery Officer can attach and sell your property, order your bank or debtors to pay the department directly (garnishee), or even detain you — powers as strong as a court decree.

flowchart TD
    ROOT["Demand notice s.156 unpaid → assessee-in-default"]:::root
    ROOT --> A["TRO draws recovery certificate"]:::leaf
    A --> B["Attach & sell property"]:::sub
    A --> C["Garnishee s.226(3): bank/debtor pays dept"]:::sub
    A --> D["Arrest & detention / receiver"]:::sub
    A --> E["Recover as arrear of land revenue"]:::sub
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef sub fill:#F2F2F2,stroke:#555,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

• Builders Supply Corporation v Union of India (1965) — the State’s priority for tax dues (Crown debt) over unsecured creditors was recognised.

Back to Top

📄 Full notes + Question Bank (₹199) — every topic in depth, model answers to all past KSLU questions, in one printable PDF. Get the bundle · 10 Solved Problems · All Law of Taxation topics