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How outstanding demand of previous year are settled with this year refund?
We generally concentrate on the year for which we are filing our income tax return. But income tax department doesn't work like this. The department checks the overall record till date. If there is any amount that is due from our side then it carried forward in coming years till it get's cleared. In general the due amount is adjusted in the refunds as per section 245 of the Income Tax Act, 1961.
What is section 245?
Section 245 gives powers to the Income Tax Department to adjust any previous year's demand of tax payable with the current year's refund. But to exercise this power, it's mandatory on their part to send intimation u/s 245 to the taxpayers and give them opportunity to submit their response on it whether they agree with it or not.
In other words, if you owe income tax department, then they will adjust the amount you owed in the current year's refund. But before adjusting that amount they will send you a notice u/s 245, stating that they are adjusting your refund with the previous years outstanding amount. You have to submit your response on it that whether you agree with department or not.
NOTE: The outstanding amount will be adjusted when refund is generated. That means even if the refund generated after 5 years, the refund will be adjusted then.
To understand this better let's take an example:
Mr. Sharma filed his return for F.Y. 2012-13. But income tax department had raised a demand for tax of Rs 21,000 on him. Mr. Sharma did not agree with the demand as the department did not consider his TDS. So, he simply filed for rectification u/s 154 for it and lived peacefully thereafter.
Then came F.Y. 2016-17, like every year Mr. Sharma filed his return, but this time he claimed a refund of Rs. 15,000. But instead of getting refund, he got an intimation from the Income Tax Department u/s 245 stating that his refund of Rs 15,000 will be adjusted with the demand raised by the department in the F.Y. 2012-13.
Now in this case apparently, Income Tax Department did not agree with the rectification u/s 154 at that time, and the demand raised still remained.
So then what to do when you receive an intimation u/s 245?
Well in such case, first thing is to stay calm and read all the details along with the time mentioned within which you can take any action (generally it's 30 days). If you do not take any action till the date mentioned then outstanding demand will be adjusted against your refund.
After reading and analyzing the notice, there can be many possibilities namely, either you agree to the outstanding demand or you don't or you agree partially or you don't agree with demand but still agree with the adjustment.
Let us discuss them all in detail :
- If you agree with the outstanding Demand:
Well in such case, you have to login to the income tax department website with your user id and password.Then follow the process given below-
Even if you do not take any action within the provided time, then the demand will automatically be adjusted with your refund.
- If you partially / fully disagree with the outstanding Demand:
If you feel that outstanding demand is partially or fully incorrect then you have to login to https://www.incometax.gov.in/iec/foportal/ with your user id and password. Then follow the process given below-
a) In partially incorrect, enter both the amounts i.e. partially correct and incorrect in their respective fields along with it, attach the documents.
b) In fully incorrect, you have to give the detailed reason for disagreeing and also you have to attach documents that supports your argument. This will then be reviewed by Income Tax department.
In these cases, you'll have to also submit the reasons for our partial/full disagreement with the demand like Demand Paid, Demand already reduced by rectification/revision, Appeal has been filed, others etc.
This is all you have to do, now its upto the department that whether it agrees to your reason or not.
- If you opt with the option that Demand is not correct but agree for adjustment :
If assessee selects Demand is not correct but agree for adjustment, then assessee must furnish the details for disagreement along with reasons. Reasons are same as provided under Demand is not correct but agree for adjustment.
ADVICE: Before taking any action it is advisable to take help of Chartered Accountant.
Click here for our services.
Now, Here's a step by step look of how you will submit the response to the Outstanding Demand:
Go to the website, log yourself in and click on the worklist option listed on dashboard.
Click on the "submit" option in order to submit the response of the demand.
Choose your option carefully after reading and analyzing your situation. We would suggest you to take help of CA if you find yourself in doubt.
The remaining part is upto the option you will select , the detail of these options have been described above.
Below are the some of the Questions/queries for your better understanding!
Frequently Asked Questions
Q- Why am I receiving Notice under section 245?
According to Income Tax Department you have some outstanding demand in previous financial years that are being adjusted against your refund. The only reason for receiving is that the Income Tax department is intimating you before adjusting your refund. Your reply has to sent within period mentioned in notice or else your refund will get adjusted against outstanding demand.
Q- How to make payment for the outstanding demand?
You can make your payments either through a bank that is authorised to collect Income Tax Payments or through online transfer under E-pay taxes option on the website :
You can confirm your challan status of payment on the NSDL website (https://tin.tin.nsdl.com/oltas/index.html) by clicking on the CIN Based view These payment will be reflected in your Form 26AS.
Caution! Make your payment under minor head 400 only, otherwise the process of settlement might get delayed due to wrong minor head.
Q- Whom should I approach to rectify the demand amount?
If the return has been processed at CPC and intimation u/s 143(1) is received then only application for rectification can be applied for:
- File online Rectification to CPC by logging into https://www.incometax.gov.in/iec/foportal/ with your user ID and password. Select Rectification request under My Account tab and enter the necessary details.
The return has been processed by Assessing Officer:
- Kindly file a rectification application u/s 154 with the Jurisdictional Assessing Officer.
Q- How can I view my outstanding tax demand?
Log onto https://www.incometax.gov.in/iec/foportal/ with your user id and password. Go to e-file tab and then click on Response to outstanding tax demand.
You can check/view your demand, after logging-in, in the dashboard under My Pending Actions.
Q- What if I didn't respond to this communication?
Well as mentioned earlier, in this case after 30 days of receipt of the notice under section 245, your outstanding demand will be considered for adjustment against your refund.
Q- Can I request for a copy of the order passed by CPC?
Yes you can request for a copy of order. You have to log on to the income tax website https://www.incometax.gov.in/iec/foportal/ and go to the My Account tab.
Alternatively, you can place a call through CPC call centre (Ph.No: 18004252229)
Q- What are the reason for tax demand raised?
Normally, Demand is raised in two conditions:
- If the ITR (Income tax Return) is not filed properly or completely due to which there is a difference in computation of Total Income/ Deduction / Exemption/ Interest etc by CPC.
- Tax credit claimed by you, have not been allowed while processing.
Still have a query or need assistance with the section 245 , you can get in touch with our CA Team.
Click here for our services.