Section 245 Notice – Refund Adjustment Against Outstanding Demand

Expert Assistance for Responding to Section 245 Intimations Proposing Refund Set-Off

Under Section 245 of the Income Tax Act, 1961, the Income Tax Department has the power to set off a refund due to a taxpayer against any outstanding tax demand before releasing the refund. Before making such an adjustment, the department is required to send an intimation to the taxpayer proposing the adjustment and giving them an opportunity to respond. This communication — commonly referred to as a Section 245 notice — gives taxpayers a limited window (typically 30 days) to either accept the proposed adjustment or file an objection with supporting reasons.

Many taxpayers receive Section 245 notices for demands that are disputed, already paid, under appeal, or time-barred. If no response is filed, the department proceeds to adjust the refund automatically. Our professionals provide complete Section 245 response services, connected with our Section 156 Demand Notice, CIT(A) Appeal, Notice Reply Support, and Income Tax E-Filing services.

Our Services

Outstanding Demand Verification

Comprehensive verification of the outstanding demand cited in the Section 245 notice — checking whether it has been paid, is under appeal, is covered by a stay order, is time-barred, or is otherwise not currently enforceable.

Formal Objection Filing

Preparation and online filing of a formal objection to the proposed adjustment through the income tax e-filing portal — with full supporting documentation — within the 30-day response window.

Refund Entitlement Analysis

Verification of the refund amount to ensure it is correctly computed and fully supported by TDS credits in Form 26AS and AIS — identifying any portion that may have been incorrectly captured.

Rectification Under Section 154

Filing of rectification applications for demands arising from computational errors, incorrect TDS credit processing, or other mistakes apparent from the record — the fastest remedy for incorrect demands.

Appeal Against Underlying Demand

Where the outstanding demand is disputed on merits, filing an appeal before CIT(A) under Section 246A — which also provides the strongest legal basis for objecting to the Section 245 adjustment.

Refund Recovery Follow-Up

After filing objections, tracking the department's response and pursuing release of the refund — including follow-up representations, portal grievance filings, and escalation if the objection is not processed timely.

Key Facts About Section 245 Notices

Response window is typically 30 days from the intimation date — missing it leads to automatic refund adjustment
Valid objection grounds include: demand already paid, under appeal, time-barred, or incorrect
A valid appeal pending with stay is one of the strongest grounds for objecting to the Section 245 adjustment
Outstanding demands can be checked on the portal under e-Proceedings → Response to Outstanding Demand
Section 154 rectification for an incorrect demand is often the fastest way to get it removed before the refund is adjusted
If refund is incorrectly adjusted, the taxpayer retains the right to challenge and recover through appeal

Frequently Asked Questions

What is a Section 245 notice?

A Section 245 notice is an intimation proposing to set off a pending refund against an outstanding tax demand before releasing it. It gives you 30 days to agree to the set-off or file objections. If no response is filed, the department proceeds to make the adjustment automatically — withholding your refund without further opportunity to object.

What are valid grounds for objecting to a Section 245 adjustment?

Valid grounds include: (1) the outstanding demand has already been paid — submit payment proof; (2) the demand is incorrect and a Section 154 rectification has been filed; (3) an appeal against the demand is pending before CIT(A) or ITAT with a stay granted; (4) the demand is time-barred and no longer recoverable; (5) the demand amount has been revised downward in a subsequent order; (6) the demand was raised in error. Each objection must be supported with specific documentary evidence.

Can the department adjust my refund against demands from different assessment years?

Yes. Section 245 gives the department the power to adjust a refund against outstanding demands from any assessment year — not just the year for which the refund relates. However, the notice must be sent and an opportunity to be heard must be given before any adjustment is made. The taxpayer can object to the adjustment on any of the grounds discussed above.

How do I check whether I have outstanding demands?

Outstanding income tax demands can be viewed by logging into incometax.gov.in under My Account → Response to Outstanding Demand, or under e-Proceedings. All outstanding demands across all assessment years are listed, showing the year, section, amount, and current status. If you have a refund pending and see outstanding demands, address them proactively before a Section 245 intimation is received.

What if my Section 245 objection is rejected?

If your objection is rejected and the refund is adjusted against the outstanding demand, you retain the right to challenge the underlying demand through rectification under Section 154 or appeal before CIT(A) under Section 246A. If the demand is ultimately set aside in appeal, the excess amount adjusted will be returned as a refund with applicable interest under Section 244A.