Guide to follow when income tax refund gets adjusted with prior outstanding demands

Section 245 of the Income Tax Act empowers the Income tax department to adjust any amount of refund due to the assessee with any previous outstanding tax liability. However, this power can only be exercised after issuing of notice u/s 245 to the assessee by providing an opportunity of being heard within 30 days of the issuance of notice and then the current refund may or may not be adjusted with an outstanding demand if any.

Essential Conditions for Adjusting Under Section 245

Only proper income tax authorities have the power to issue a notice under sec. 245:

Only the following income tax authorities have the power to issue a notice under section 245

1.  Assessing Officer.
2.  Commissioner or Deputy Commissioner of Appeals.
3.  Principal Chief Commissioner or Chief Commissioner of Income Tax.
4.  Principal Commissioner or Commissioner of Income Tax.

There must be Outstanding Demand Payable: The refund due can be adjusted only with any outstanding demand of the assessee himself. In other words, a refund cannot be adjusted with the outstanding demand of a third person or any deceased relative.

Taxpayers must be given an opportunity of being heard: The assessing officer should give a period of 30 days after the issuance of notice to the taxpayers an opportunity of being heard whether the current refund may or may not be adjusted with an outstanding demand if any.

How To View Outstanding Tax Demand on Income Tax Portal?

The Taxpayer can submit the response online by performing the following steps

1. Log in to https://eportal.incometax.gov.in/iec/foservices/#/login
2. Go to the 'e-File' menu, and Click 'Response to Outstanding Demand'.
3. All outstanding demands will be displayed here.
4. Click on the 'View' hyperlink under the 'Response' column.

How To Respond to Notice Under Section 245

Taxpayers can respond to the notice at https://www.incometaxindiaefiling.gov.in with their user id and password.

Under the 'e-file' tab You will see your outstanding demand.

i. In case the demand shown is correct

Click on 'Submit response' and select 'Agree with Demand'. On receipt of the confirmation, demand will be adjusted against the refund, and the balance of the refund, if any, will be issued.

ii. In case the demand shown is partially correct

click on 'Submit response' and then select 'Demand is partially correct. Enter the amount of Demand that is correct, and this will be put under review by the Income- Tax Department

iii. In case the demand shown is incorrect

Click on 'Submit response' and select 'Demand is incorrect. Give a detailed justification to show why the demand is incorrect and attach relevant documents related to it.

The author Sushant Gangurde is a legal analyst who aims to educate people about various tax laws and financial planning.