Section 245 — when your refund is set against an old demand
Section 245 lets the department adjust a refund due to you against tax outstanding from an earlier year. Before it does so it must give you notice and an opportunity to respond. The notice frequently concerns a demand the taxpayer has never seen, from a year they thought was settled.
At a glance
- What it does
- Sets a current refund against an earlier demand
- Notice required
- Yes, with an opportunity to respond
- Where to respond
- Pending Actions → Response to Outstanding Demand
- Three responses
- Agree, disagree with reasons, or partly agree
- If you do nothing
- The adjustment proceeds
Check the old demand before agreeing to anything
Old demands are often stale. A common pattern: tax was paid years ago but the challan was never matched to the assessment, so the demand stayed open on the system while the money sat with the government. Another: the demand arose from a 143(1) mismatch that was subsequently rectified, but the demand record was never closed.
Both are answered by disagreeing with reasons and attaching the evidence — the challan, or the rectification order. Silence is treated as agreement.
Demands you never received still appear here, years later
Notices go to the address and email in the return, and returns filed years ago carry addresses and email accounts people no longer use. A demand raised in a year you never heard about sits quietly on the system until a refund appears for it to attach to. The first you know of it is a section 245 notice about an assessment year you had forgotten. Before agreeing, look at the outstanding demand on the portal and check whether it was ever paid — the challan is frequently there, unmatched. Keeping the email on your PAN current prevents the whole category of problem.
Questions we get asked
I already paid that demand.
Disagree, and give the challan details — CIN, date and amount. Unmatched challans are one of the commonest reasons a settled demand stays open.
How long do I have?
The notice states the period. It is short, and doing nothing counts as agreement.
Can they adjust more than the refund?
The adjustment is limited to the refund. Any balance remains outstanding and is collected separately.
Want us to handle it?
Flat ₹499 including GST for ITR-1 and ITR-4. Everything else quoted before any work starts, with no charge for the quote.