How to Get a Stay of Demand Under Section 220(6)

Filing an appeal does not stop the department from recovering the demand.

That single fact catches out more businesses than any other point in tax litigation. The appeal is filed, everyone relaxes, and then the bank account is attached or the refund is adjusted. The appeal was never the protection. The stay is.

Most companies are also told they must pay 20% to get one. That is not what the law says. The 20% comes from a CBDT office memorandum, not from the statute, and High Courts have repeatedly held it is not mandatory and cannot be applied mechanically.

This guide explains how the stay actually works, what a proper application must contain, and how to push back when the answer is a reflexive "pay 20% first".

Where the Power Comes From

When a demand notice is served, you generally have thirty days to pay. Fail to pay and you are treated as being in default, which opens the door to recovery.

The relief sits in Section 220(6) of the Income-tax Act, 1961, now carried into Section 340(6) of the Income-tax Act, 2025 with effect from 1 April 2026. Where an appeal is pending, the Assessing Officer may, in his discretion and subject to conditions, treat you as not being in default for as long as the appeal remains undecided.

Read that carefully. The statute gives the AO a discretion to exercise on the facts of your case. It does not prescribe a percentage.

Where the 20% Actually Comes From

The number originates in administrative instructions, not the Act.

CBDT Instruction No. 1914 of 1996 set out the recovery procedure. An office memorandum of 29 February 2016 introduced a standard rate of 15% of the disputed demand at the first appeal stage. A further memorandum of 31 July 2017 revised that standard rate to 20%.

Two things follow. First, these are guidelines for administrative consistency, not a statutory precondition. Second, the same memoranda expressly contemplate departure from the standard rate in appropriate cases, both downward and upward.

The Supreme Court has held that these memoranda do not fetter the power of the AO or the Commissioner to grant a stay on payment of a lesser amount.

What the Courts Have Been Saying

This is the part worth knowing before your next hearing, because the judicial position has hardened considerably in the taxpayer's favour.

The Delhi High Court, in December 2025, reiterated that a deposit of 20% is not mandatory and that the AO must independently exercise discretion under Section 220(6), relying on its earlier ruling in the NASSCOM case.

The Madras High Court, in September 2025, went further and struck down a mechanical insistence on 20%, holding that a CBDT circular cannot tie quasi-judicial hands and that stay orders must be judicious, not automatic.

The Karnataka High Court, in January 2026, confirmed that a conditional stay requiring 20% is not final or immune from review, and that the taxpayer has an administrative remedy before the jurisdictional Principal Commissioner under the same office memoranda.

Reported decisions have also set aside orders where authorities rejected a stay purely for non-deposit of 20% without considering prima facie merits or financial hardship, and where a Principal Commissioner mechanically directed 40% without applying his mind.

The pattern is consistent. An officer who refuses to look past the percentage is exercising no discretion at all, and that is exactly what gets set aside.

What a Proper Stay Application Must Establish

Three limbs. Address each separately, with evidence, and do not merge them.

1. Prima facie case. Not that you will definitely win, but that you have a genuinely arguable position. This is where a covered issue matters enormously. If a coordinate bench, your jurisdictional High Court or the Supreme Court has decided the same point in your favour, lead with it. If the addition rests on a legal error rather than a factual dispute, say so plainly.

2. Financial hardship. Show it, do not assert it. Cash flow statements, bank balances, working capital position, sanctioned limits already utilised, salary and statutory obligations falling due, committed capital expenditure. A paragraph saying payment would cause hardship achieves nothing. A schedule showing that paying 20% would leave you unable to meet payroll achieves a great deal.

3. Balance of convenience and irreparable injury. What happens to the business if recovery proceeds, versus what the revenue actually risks by waiting. Point out that the demand is backed by your ongoing operations and assets, and that the appeal will be decided in due course.

Add a fourth practical element: offer something credible. A reasoned proposal, whether a lower percentage, instalments, or an undertaking not to dispose of specified assets, succeeds far more often than a request for a blanket stay of the whole amount.

The Application Itself

Address it to the jurisdictional Assessing Officer, file it in writing, and file it early. Ideally apply before the thirty-day payment window expires, not after recovery has started.

Include the assessment year and demand details, the appeal particulars with the acknowledgement number, the three limbs above with supporting documents, your specific prayer, and copies of the assessment order and the appeal memo.

Ask expressly for a reasoned order. The AO is required to apply his mind and record reasons. An unreasoned rejection is the easiest kind of order to challenge.

Also check whether you have a pending refund for another year. Refunds can be adjusted against the demand, and where a stay is in place that adjustment should not simply happen by default. Raise it in the application rather than discovering it later.

If the AO Says No or Insists on 20%

You have a ladder. Climb it in order.

Step one, the Principal Commissioner. The office memoranda themselves provide an administrative review where the AO's conditional order is unreasonable. The Karnataka High Court expressly confirmed this remedy in January 2026. Use it, and use it quickly.

Step two, the appellate authority. Where the appeal is before the Tribunal, the Tribunal has its own power to grant a stay of recovery on application, and that application carries a nominal fee.

Step three, a writ petition. Where the rejection is unreasoned, mechanically applies 20% without considering merits or hardship, or where recovery is being pressed despite a pending stay application, a writ is available. Recent High Court orders in exactly these circumstances have set aside conditional stay orders and remanded matters for fresh consideration. Whether that is the right move depends on the facts, and we set out the trade-offs in our note on writ versus appeal in tax litigation.

Three Mistakes That Cost People the Stay

Applying late. Once recovery has begun, attachment has happened or the refund has been adjusted, you are arguing to undo something rather than to prevent it. Apply inside the thirty days.

Asserting hardship without proving it. The single most common failure. Hardship is a question of evidence, and the officer needs numbers he can put into an order.

Treating the stay as the strategy. A stay buys time, nothing more. Interest continues to run on the unpaid demand throughout. If the appeal is weak, that time is expensive, which is why the honest question is whether the appeal is worth running at all.

Where Settlement Beats a Stay

Sometimes the right answer is not to fight the demand but to price it and close it.

Where a dispute has run for years, the disputed tax has grown with interest, and the underlying position is genuinely arguable both ways, settlement can be worth more than a stay plus three more years of litigation. Our case study decoding the Vivad se Vishwas Scheme works through exactly how disputed tax is computed in that situation, and what a taxpayer actually pays across different scenarios. It is a useful lens even outside a formal scheme, because it forces you to price the dispute rather than simply defend it.

More worked examples are on our case studies page.

How DSRV India Helps

DSRV and Co LLP prepares and files stay applications, builds the hardship record that officers actually accept, escalates to the Principal Commissioner where a conditional order is unreasonable, and represents clients through tax litigation from assessment to Tribunal. As one of the established chartered accountant firms in Gurgaon, we have spent more than 30 years on this work.

We will also tell you when paying is cheaper than fighting. That advice has saved clients more than most stays.