Income Tax department issues notices as a means of communication with the taxpayers. Hence, tax notices range from just intimation of return processed or intimating the tax payable etc. or, setting off the refunds against tax payable under section 245. We shall see everything with respect to notice under section 245 and how to tackle and respond to the same.
Why is notice issued under section 245?
Notice or intimation under section 245 is issued where the Income Tax department calculates tax payable for any of the assessment year for a taxpayer and such tax payer has claimed refund in any other assessment year/s. In such a case, the department can set off such refund claimed against tax payable as ascertained.
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How does it work?
There are more than one scenarios where notice under section 245 may be issued, some of which are mentioned below.
- Suppose you have claimed a refund in return of income in the assessment year 2013-14. The department has calculated the tax liability for assessment year (AY) 2014-15 on the basis of your return of income filed. Now the department is looking at two figures
- one is your tax liability as calculated by the department for AY 2014-15 and
- another is refund claimed by you in your return of income for AY 2013-14.
So instead of initiating 2 actions for
- issuing refund for AY 2013-14 and
- raising tax demand for AY 2014-15,
the department will now issue single intimation for adjusting the refund against such tax payable under section 245.
- Besides, intimation under section 245 may even be issued following the notice intimating the tax liability under section 143 (1) (applicable where intimation under section 143 (1) is issued in case department computes tax payable by or decreases the loss as claimed by the tax payer).
- Also tax payers may have filed rectification request for protesting against tax liability as calculated by the department (for e.g. where TDS claimed by the tax payer is not considered by the department). If such rectification request is not accepted by the department, then it may result into reinstating the tax liability as calculated by the department. Such rejected rectifications may be followed by section 245 notice, where refund claimed by the tax payer is sought to be adjusted against tax liability as computed by the department for any other year.
How to respond to notice or intimation issued under section 245?
- Check whether notice under section 245 pertains to you by verifying the personal details like name, PAN, address, ward/circle etc.
- Once confirmed that the notice belongs to you, check for the demand indicated by the department with respect to following details.
- Assessment year to which the tax demand pertains to
- Assessment year to which refund pertains to
- Whether the demand as indicated by the department is correct as per return of income and other supporting? (you may need help of tax advisor here)
- Whether you had already received the demand notice as under section 143 (1) or section 156 or any other sections for the year to which the tax demand (as per notice under section 245) pertains to?
- If yes to Q.4, then have you acted on such notice?
- If yes, then did you agree and paid such tax liability calculated by the department? If yes, then search for the challan number through which such tax liability was already paid.
- Did you disagree with the previous demand and have filed rectification for the same? Then search for that rectification request filed and/or accepted/rejected.
- If no to Q.4, then this is the first time that tax demand is informed to you. Please search for the return/s of income filed for the relevant assessment year with respect to tax payable as well as refund, as intimated in the notice under section 245.
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Once you are done collecting return of income and the supporting documents for the relevant assessment years for which notice under section 245 is issued, you should log in to Income tax website with your log in ID.
Once you log in, click on “e-file’’ tab and further click on “response to outstanding demand’’ to view the details of the tax demand.
There will be 3 situations which may arise here.
1. You may agree that tax demand is correct.
This is a situation, where you may agree to the tax computation by the department and agree that the tax liability so calculated is correct. In such case, you should click on “demand is correct” and the department will adjust your refund due against the tax payable. So in this case, you will not receive any refund and also you need not pay the tax liability and department will adjust the tax liability against the refund due to you.
2. You may disagree with part of demand
Here, you are required to click on “Demand is partially correct”. You will be prompted to fill in reasons for disagreement.
Reasons for disagreement may be
- Demand reduced as it is already paid
- Demand reduced due to rectification effect.
- Demand reduced by the appeal effect
- Filing of appeal
- Rectification filed with CPC/AO
- Any other reason.
Each reason is substantiated by relevant details like for point a., CIN details etc.
There would be two fields for amounts –
- one for correct tax liability as per you (taxpayer) and
- another is auto filled with difference (demand as per notice under section 245 – correct amount) for which you are required to select one of the reasons for disagreement as mentioned above.
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3. You may disagree with demand
In such case, you should click on “demand is incorrect”, where you will be required to furnish same reasons as where you are rendered with “demand is partially correct.”
This situation may arise even due to Non consideration of TDS or self-assessment tax challan etc.
- File online grievance
This step is for those who have selected that they disagree with demand by clicking on “demand is partially correct or is fully incorrect”.
In case, the tax demand is uploaded by CPC (as shown on the website)
If you are not satisfied with processing of your original / rectified return by CPC, then you are open to file online grievance against the same.
where the demand is uploaded by the AO
you can contact the AO for further enquiry if you feel that you return is not processed correctly.
However, while you approach the AO/CPC, point to be noted is that response to notice under section 245 is to be given within 30 days, failing which the department will adjust the tax liability against the amount refundable to you.
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- Wait for the response.
Once you receive the notice under section 245, there could be 3 scenarios.
- The AO/CPC have already adjusted the demand, in which case, you will be unable to submit the reply online.
- The AO/CPC has accepted your claim where you have responded online and you disagreed with demand fully or partially. You will receive partial refund after due consideration of tax liability (in case of partial set off of tax liability) or full refund if no tax liability is set off.
- The AO/CPC has rejected your claim where you have responded online and you disagreed with demand partially or fully. You will not be eligible to receive the refund in full or in part and department will carry on setting off tax liability against amount of refund due.
The appropriate action is to be taken in all these scenarios, failing which the AO will be empowered to adjust the demand on his discretion.
It’s better that you should hire financial advisor or tax advisor in case you are not sure of any of the steps given herein.