Section 245 — Income Tax Refund Adjustment Against Outstanding Demand

Section 245 of the Income Tax Act allows the Income Tax Department to adjust an income tax refund due to a taxpayer against any outstanding tax demand on the taxpayer's account. If you have a refund in your current ITR but also have an old pending tax demand — the IT department will send you an intimation under Section 245 before adjusting. Here is the complete guide.

When Does Section 245 Apply?

• You are entitled to a refund for the current assessment year (e.g., AY 2026-27)
• You have a pending/outstanding tax demand for any prior year (e.g., AY 2021-22) — which may be disputed or undisputed
• The Income Tax Department (CPC, Bengaluru) proposes to set off the refund against the outstanding demand
• Before making the adjustment, the CPC sends you an intimation under Section 245 — giving you 30 days to respond

Your Options After Receiving Section 245 Intimation

• Agree with the demand adjustment: If the demand is correct — respond "agree" on the income tax portal. The refund is adjusted against the demand; you receive the balance refund (if any).
• Disagree with the demand: If the demand is incorrect, already paid, stayed by court, or disputed in appeal — respond "disagree" with reasons. The department reviews and, if your reason is valid, releases the full refund.
• No response within 30 days: The department may proceed with the adjustment without your consent

How to Respond to Section 245 Intimation

• Login to incometax.gov.in → Pending Actions → Response to Outstanding Tax Demand
• Select the demand — click "Submit Response"
• If disagreeing — provide detailed reasons: demand is incorrect, demand is already paid (attach challan), demand is stayed by ITAT/HC/SC (attach order), demand is pending in appeal (attach appeal acknowledgement)

How to Dispute the Underlying Demand

• If the demand is from an old assessment — file an appeal before CIT(A) within 30 days of the assessment order (if not already done)
• If the demand is from a CIT(A) order — file an appeal before ITAT
• Apply for stay of demand during pendency of the appeal — typically 20% of disputed demand must be paid to get a stay

Conclusion

Section 245 refund adjustment is a legitimate IT department power — but taxpayers have the right to respond and dispute incorrect demands. SPOTON manages outstanding demand responses, appeal filings and refund recovery for taxpayers across Kerala. Contact us for expert income tax dispute resolution services.