Receiving a notice from the Income Tax Department can be concerning for many taxpayers. One such notice is issued under Section 245 of the Income Tax Act, 1961. This notice is related to the adjustment of refunds against pending tax demands. In this article, we’ll delve into what this notice means, why it’s issued, and how you should respond if you receive one.
What is Section 245 of the Income Tax Act?
Section 245 of the Income Tax Act, 1961, empowers the Income Tax Department to adjust any refund due to a taxpayer against any outstanding tax demand. Before making such an adjustment, the department must issue a notice to the taxpayer, allowing them an opportunity to respond or raise objections.
Why is a Notice Under Section 245 Issued?
A notice under Section 245 is issued when:
Communication Requirement: Before proceeding with the adjustment, the department must inform you via a notice, allowing you to respond.
Pending Tax Demand: The Income Tax Department identifies a pending tax demand against your PAN (Permanent Account Number).
Refund Due: You are eligible for a refund in the current assessment year, but the department intends to adjust this refund against the pending demand.
How to access details of outstanding tax demand?
The details of your outstanding demand can be viewed on the Income Tax e-Filing portal.
- Income Tax e-Filing portal with user name and password.
- Go to Pending action Tab and select Response to outstanding Demand
- The details of notice under Section 245 will be displayed.
Consequences of not responding to intimation under Section 245
You must submit a response to the intimation under Section 245 within 21 days of receiving it. When you do not respond to the intimation within 21 days, outstanding demand will be considered for adjustment against your refund after considering interest on demand. The interest is chargeable on principal demand pending the relevant assessment year. Thus, the interest demand will be adjusted against the refund without confirmation of the assessee.
Responding to intimation under Section 245
When you receive an intimation under Section 245, review its details and the time provided to respond. If you miss the deadline to respond, the outstanding demand will be considered for adjustment against your refund. You can respond to the intimation in two ways: Demand is correct and Disagree with demand (either in full or in part).
Following is the process to respond to the intimation:
Demand is correct:
When you agree with the outstanding demand, you must log in the Income Tax e-Filing portal and enter the response that the demand is correct. Following is the process:
- Login to the Income Tax e-Filing portal with user name and password.
- Click the ‘Pending Actions’ tab and select the ‘Response to Outstanding Demand’ option.
- Click the ‘Submit Response’ button.
- Select the ‘Demand is Correct’ option and click the ‘Submit’ button.
If the refund is due, the outstanding amount and the interest will be adjusted against the refund due. Otherwise, you must pay the demand amount immediately.
Disagree with Demand (Either in Full or in Part):
When you do not agree with the outstanding tax demand, you must log in the Income Tax e-Filing portal and enter the response that you disagree with the demand (either in full or part). In such a case, you will have to provide reasons for your response. Following is the process:
- Login to the Income Tax e-Filing portal with user name and password.
- Click the ‘Pending Actions’ tab and select the ‘Response to Outstanding Demand’ option.
- Click the ‘Submit Response’ button.
- Select the ‘Disagree with demand (Either in full or part)’ option and click ‘Add Reasons’.
- Select the option and click the ‘Apply’ button. You can select more than one option.
- Enter the appropriate details for each reason that you selected and click the ‘Submit’ button.
After submission of your reason, it is up to the income tax department whether it agrees to your reason or not.
What Happens After You Respond?
Once you respond to the notice:
- Acceptance of Adjustment: If you accept the adjustment, the department will offset your refund against the outstanding demand and issue the remaining refund, if any.
- Dispute Resolution: If you dispute the demand, the department will review your response. If they find merit in your objections, they may adjust the demand or remove it entirely.
Consequences of Ignoring the Notice
If you do not respond to the notice within the specified time:
- Automatic Adjustment: The department may proceed with the adjustment of your refund against the outstanding demand without your consent.
- Delay in Refund: Ignoring the notice may lead to a delay in processing your refund.
A notice under Section 245 of the Income Tax Act, 1961, is a crucial communication from the Income Tax Department. It allows the department to adjust any refund due against outstanding tax demands, but it also ensures that taxpayers have a chance to contest any discrepancies. If you receive such a notice, it’s important to act promptly by verifying the demand and responding within the specified time frame to avoid any unintended consequences.
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