Let us first understand the provisions of section 220(1) relating to payment of tax as per demand notice. Then we will understand the provision for levy of interest in case of non-payment of tax demanded as per demand notice issued under section 156.
When a demand notice under section 156 has been issued to the taxpayer for payment of tax (not including notice for payment of advance tax) then such amount is payable within a period of 30 days as per section 220(1). This period may be reduced with approval of designated authorities. In case of failure of payment of amount in the demand notice issued under section 156, as per section 220(2), the person shall be liable to pay simple interest at 1% for every month or part of a month. Interest shall be payable for the period commencing from the day after the last date till the day on which the amount is paid. After TDS statement is processed the deductor is intimated the amount payable or refundable. This intimation is deemed as notice of demand under section 156, failure of which attracts interest under section 220(2).
Where interest is charged under sub-section (1A) of section 201 on the amount of tax in intimation which has been specified sub-section (1) of section 200A for any period no interest shall be charged under Section 220(2) on the same amount for that period.
[As amended by Finance Act, 2017]
It is also provided that where interest is charged under sub-section (7) of section 206C on the amount of tax specified in the intimation issued under sub-section (1) of section 206CB for any period, then, no interest shall be charged under sub-section (2) on the same amount for the same period.