Income Tax Notice Under Section 245

A Section 245 income tax notice (a notice u/s 245) is only one of several notices the department can send after it processes a return; you can see the full set in our guide to the income tax notice system.

Section 245 is an intimation that the Income Tax Department intends to adjust your income-tax refund against an outstanding tax demand from a previous assessment year instead of paying the refund out. It is issued under Section 245 of the Income-tax Act, 1961, which permits set-off of a refund against any sum "remaining payable" by the taxpayer, provided the department first gives written intimation of the action proposed. The assessment year of the refund and the assessment year of the demand can be different, and there is no statutory time limit on when a Section 245 intimation may be issued. It recovers an old demand rather than raising a fresh tax demand.

Section 245 is technically an intimation, not a scrutiny or assessment notice, and it presupposes a demand that already exists, usually raised earlier under Section 156 or Section 143(1). The refund may be adjusted in full or in part. This process is called refund set-off / adjustment, and Section 245(1) is the sub-section that authorises it, subject to prior intimation and a chance to be heard before the adjustment is made.

Three facts define how far the power reaches:

• Refund and demand can be from different assessment years.
• There is no statutory time limit to issue the intimation.
• The refund can be adjusted in full or in part.

Section 245 notices normally give you 30 days to respond on the e-filing portal before the department adjusts your refund. Section 245 of the Income-tax Act itself does not fix a number of days: it only requires "prior intimation," so the 30-day period is the window CPC has administratively allowed and states on the intimation. Some current portal intimations display a shorter window (reported as low as 21 days), so always act on the exact deadline printed on your own intimation rather than assuming 30 days. The clock runs from the date you receive the intimation, and the safest course is to respond several days early.

Read the deadline on your intimation: respond within that window (commonly 30 days).

If you do not respond to a Section 245 intimation within the stated window, the Income Tax Department treats your silence as consent and proceeds with the adjustment automatically: your refund is set off against the outstanding demand and only the balance (if any) is paid to you. Because Section 245 requires only prior intimation and not your positive agreement, no reply means the department has satisfied the law and can complete the set-off. If the underlying demand was actually wrong or already paid, an un-contested adjustment is far harder to reverse afterwards: you would have to pursue rectification under Section 154 or an appeal to recover it.

Silence here is treated as implied consent, and while the demand stands unpaid it keeps attracting interest at 1% per month under Section 220(2), so the cost of not replying grows. That is one reason what happens if you ignore an income tax notice matters well beyond this single refund. Responding within the window, even just to disagree, is what protects the refund.

No. The Income Tax Department cannot adjust your refund without first sending a Section 245 intimation and giving you a chance to respond. Section 245(1) makes prior written intimation of the proposed set-off mandatory, not optional. Courts, led by the Delhi High Court in Court On Its Own Motion v. CIT (and later rulings applying it), and CBDT's own instructions have held that a refund adjusted without prior intimation, or adjusted before the response window on the intimation has expired, is contrary to law and liable to be reversed. So if your refund was set off and you never received a Section 245 notice, or it was adjusted before your 30 days ran out, the adjustment is open to challenge and you can have it undone.

The adjustment is open to challenge in two situations:

• No Section 245 intimation was ever issued to you.
• Your refund was adjusted before the stated response window closed.

If either applies, escalate in this order:

1. Raise a grievance, or a refund reissue / disagreement request, on the e-filing portal against CPC.
2. File a Section 154 rectification if the underlying demand itself is wrong.
3. If it is still unresolved, file a writ petition in the jurisdictional High Court to quash the adjustment and release the refund.

Before you challenge anything, check whether a notice was issued on the portal, because your remedy depends on whether a Section 245 intimation exists at all. Even after a bad adjustment is reversed, the department must still issue a fresh Section 245 intimation before it can re-attempt the set-off.

To respond to a Section 245 notice, log in to the e-filing portal (incometax.gov.in), open Pending Actions → Response to Outstanding Demand, locate the demand the refund is being adjusted against, and choose "Submit response." You then pick one of three positions: agree with the adjustment (the refund is reduced and the demand cleared), disagree with the demand giving reasons and proof, or partially agree (accept part, dispute the rest). If you disagree, select the correct reason: "demand already paid," "rectification filed," "demand reduced/quashed by appeal or rectification order," or "demand not correct," and upload supporting proof such as challans, rectification orders or appeal orders. Submit before the deadline on the intimation and save the acknowledgement.

Verify the old demand before you agree to anything: old demands persist from processing errors, unrecorded payments, and rectification orders that were never reflected. Match your position to the proof you can attach.

The same agree, disagree, or partially agree flow applies whenever you respond to an income tax notice on the e-filing portal, so keep the acknowledgement number for your records.

Suppose you are due a ₹45,000 refund for AY 2026-27, and the department's records show an outstanding demand of ₹30,000 from AY 2024-25. A Section 245 intimation tells you it proposes to adjust ₹30,000 of your refund against that old demand and pay you only the ₹15,000 balance. You check the AY 2024-25 demand and find you had already paid it: the challan simply was not reflected. You log in within the response window, select "Disagree with demand → demand already paid," upload the challan, and submit. Because you responded with proof inside the window, the department drops the ₹30,000 set-off and releases your full ₹45,000 refund instead of ₹15,000.

The lesson holds either way: verify the old demand before you agree, because agreement clears the demand out of money you may not actually owe.

Section 156 and Section 245 are two stages of the same recovery. Section 156 is the Section 156 demand notice, raised by the Assessing Officer, that first tells you a specific sum of tax, interest or penalty is payable, typically with 30 days to pay. Section 245 comes later: instead of chasing that unpaid Section 156 demand, the department uses Section 245 to recover it out of a refund due to you in another year by setting the two off. So a live Section 156 demand you never paid or disputed is exactly what a Section 245 intimation later adjusts your refund against, and clearing or successfully disputing it removes the basis for any Section 245 set-off. The pay-or-dispute mechanics of the demand, including interest under Section 220(2), are covered in full on the Section 156 page.