Section 245 of the Income Tax Act deals with a situation where a taxpayer is due to receive tax refund but also has an outstanding tax demand from previous years. In such cases, the Income Tax Department can send an intimation to the taxpayer asking for their consent to adjust any pending tax dues from their current year’s tax refund. This notice gives the taxpayer a chance to either agree or disagree with the adjustment. 

What is Intimation Under Section 245 of the Income Tax Act?

Intimation under Section 245 of the Income Tax Act is a notice sent by the Income Tax Department to inform the taxpayer that they are adjusting a previous year's unpaid tax with the current year’s tax refund. However, it is mandatory for the department to inform you through intimation under Section 245. It gives a chance to agree or disagree with the adjustment. If you disagree or believe the pending tax is incorrect, you can respond to the notice with your explanation.

Suppose that Mr Kumar had a pending tax demand of Rs 30000 from the financial year 2017-18. He disagreed with the calculation and filed a rectification request under Section 154, assuming the issue had been resolved.

However, in the financial year 2020-22 Mr Kumar filed his income tax return and expected a refund of Rs 20000. To his surprise, he received an intimation under Section 245 stating that the expected refund would be adjusted against his old outstanding demand from 2017-18. This came as a shock since he believed the earlier demand had already been taken care of. 

This highlights how the Income Tax Department can adjust refunds against pending demands from previous years. Section 245 empowers them to do this but only after informing the taxpayer. That is why it is important to read such ITR notices carefully and respond asap to avoid any unexpected adjustments.

Time Limit to Respond to Intimation u/s 245

If you receive an intimation under Section 245, you must respond within 30 days from the date of receiving the notice. This is your opportunity to either agree or raise objections to the proposed adjustment.

If you don’t respond within this time, the department may automatically adjust your refund against the outstanding demand, regardless of any dispute you may have. 

How to Respond to the Notice under Section 245?

If you receive an intimation under Section 245 from the Income Tax Department, don’t worry but do pay attention. This ITR notice means that the department wants to adjust your current year’s refund against some unpaid tax demand from a previous year. 

Before anything else, read the notice carefully. Look for the details of the outstanding demand and the time limit to respond which is typically 30 days from the date of notice. If you fail to respond to it within its specified period, the department can go ahead and adjust the refund automatically. 

So it is important to take timely action. You have two main options: 

• Either you agree with the outstanding balance
• Or, you disagree/partially disagree with the demand. 

If You Agree with the Outstanding Demand

• Visit Income Tax Portal and login with PAN, password and captcha code. 
• Go to the ‘Pending Actions’ tab and click on Response to Outstanding Demand. 
• Choose “Submit Response” and then select "Demand is correct.”
• You can also choose to pay the outstanding amount directly from the same page. 
• Click on “Submit” and verify that your submission has been successfully recorded.

If You Disagree/Partially Disagree with the Outstanding Demand

• Log in to the Income Tax e-filing Portal with your user ID and password.
• Go to the ‘Pending Actions' tab and click on Response to Outstanding Demand. 
• Click on Submit Response” and then choose "Disagree with demand(Either in full or part).”
• Click on "Submit."
• You will now require to mention the reasons for partial/full disagreement with the demand. Reasons include demand paid, demand already reduced by rectification/revision, appeal has been filed, etc. 
• Make sure your response is recorded properly. Save a copy for your records and follow up if needed. After that, it’s up to Income Tax Department to review and decide based on your response.

Why You Received an Intimation u/s 245?

The Income Tax Department sends a notice under Section 245 when you have a refund due this year but also have pending tax dues from earlier years. Instead of paying the refund, the department adjusts it against your old dues. This intimation is issued due to reasons like: 

• Past tax dues not cleared
• Payment mismatches
• Unresolved demands from earlier assessments

In any case, it’s best to consult a Chartered ONE tax professional before responding to the notice!

Process for Checking Outstanding Tax Demand for Adjustment

If you want to see whether there is any unpaid tax demand that could be adjusted against your refund, check it on the Income Tax e-Filing Portal. 

Step 1: Login to the income tax portal with user ID and password.

Step 2: Once logged in, select the view returns/forms tab on the dashboard.

Step 3: From the options available, choose ‘Income Tax Returns’ to see the returns you have filed. 

Step 4: Select the relevant assessment year for which you want to review the details.

Step 5: Click on the acknowledgment number linked with the assessment year to view the e-filed returns/forms.

Step 6: Inside the detailed view, check if there is any message or section indicating tax still payable or outstanding demand. 

Step 7: If you have received an intimation u/s 245, review this notice carefully. It will tell you the amount due and give you a chance to respond.

Consequences of Not Responding to the Notice Intimation u/s 245

If you don’t respond to this notice within 30 days, the income tax department will adjust your refund against the outstanding amount even if you disagree with it. Also, interest and penalties may keep adding up, thereby increasing the total amount you owe. And lastly, repeated failure to respond or settle dues can lead to legal action involving asset attachment, recovery proceedings, or bank account freezing to receive the pending amount. 

So, it’s best to always respond to notices like Section 245 on time. If you are unsure why a demand has been raised or believe it’s incorrect, consult a Chartered ONE tax expert!