Outstanding tax demand on your portal? How to agree, disagree fully, or dispute it in part

You log in to the income-tax e-filing portal one evening in July 2026 to track a pending refund, and a red flag greets you under Pending Actions: an Outstanding Demand of Rs 44,000 against a Demand Reference Number (DRN). Nothing was posted to you; the notice under Section 156 of the Income-tax Act 1961 sits entirely inside the portal. Panic is the wrong first move. The Response to Outstanding Demand facility lets you agree, disagree in full, or dispute the demand in part, and the choice you record on that screen decides whether you pay, contest, or split the liability. This guide walks through the exact statutory footing and a rupee-by-rupee resolution for a salaried filer for Assessment Year 2026-27.

The Scenario

Consider Meera, a salaried professional with gross salary income of Rs 14,00,000 for FY 2025-26, filing under the new tax regime. After the standard deduction of Rs 75,000, her taxable income is Rs 13,25,000. Her employer deducted tax at source of Rs 81,900 across the year, and she filed her return on 20 June 2026 claiming full credit for that TDS. The Centralised Processing Centre (CPC) processed her return but a demand of Rs 44,000 surfaced because Rs 40,000 of her TDS does not appear in her Form 26AS: her employer filed the Q4 TDS statement late, so the credit had not flowed through when CPC ran the assessment. A further Rs 4,000 is a genuine shortfall of interest under Sections 234B and 234C on undeclared savings-bank interest.

Meera's problem is now three-sided. Rs 40,000 of the demand is wrong and should collapse once the TDS credit posts, but Rs 4,000 is correct and payable. Ignoring the notice invites recovery action and interest under Section 220(2) at 1% per month. Blindly paying all Rs 44,000 surrenders a genuine dispute. The portal is built for exactly this middle path, and it is worth cross-checking the numbers on Oquilia's income-tax calculator and TDS calculator before you respond so you know which side of the Rs 44,000 is defensible.

Statutory Answer

A tax demand does not begin on the portal; it begins with Section 156. Under Section 156 of the Income-tax Act 1961, when any tax, interest, penalty or other sum is payable as a result of an order, the Assessing Officer serves a notice of demand specifying the sum payable. That is the DRN you see under Pending Actions. The demand is not a suggestion; it is a statutory instrument, and the portal upload counts as service.

Section 220 sets the clock and the cost. Section 220(1) requires the amount in a Section 156 notice to be paid within 30 days of service of the notice. Section 220(2) provides that if the sum is not paid within that period, simple interest at 1% for every month or part of a month runs from the end of the 30 days until payment. Under Section 220(4), a taxpayer who does not pay within the allowed time is deemed to be an assessee in default, which is what opens the door to recovery. The full text of these provisions is on the official code at indiacode.nic.in.

There is a second lever the department can pull without asking twice: Section 245. Under Section 245 of the Income-tax Act 1961, any refund due to you in one year can be set off against tax remaining payable in another, after prior intimation to you. So Meera's pending refund elsewhere is not safe while a Rs 44,000 demand stands unresolved. This is precisely why recording an accurate response matters more than the size of the demand, and it is documented in the department's Respond to Outstanding Demand FAQ on incometax.gov.in.

The response itself follows a fixed path: Login > Pending Actions > Response to Outstanding Demand. Against each DRN the portal offers you two doors. You either agree the demand is correct and pay through Pay Now, or you disagree, in full or in part. On a partial disagreement you must pay the undisputed portion first and then select a reason for the disputed part, choosing from the listed grounds or picking "Others" and typing the details and the exact disputed amount. One rule is unforgiving: once you record that you agree the demand is correct, you cannot later disagree with it, so never click agree to make the red flag disappear.

Worked Resolution

Start by proving to yourself what the tax should have been. On taxable income of Rs 13,25,000 under the new regime for FY 2025-26, the slab tax works out as follows.

Meera's income of Rs 13,25,000 is above the Section 87A threshold of Rs 12,00,000, so the Rs 60,000 rebate available in the new regime does not apply to her, and her liability stands at Rs 81,900. Her employer's TDS of Rs 81,900 exactly matches this, so once the missing Rs 40,000 posts to her Form 26AS the tax is fully paid. The only true shortfall is the Rs 4,000 of interest under Sections 234B and 234C. Her response therefore splits the DRN cleanly.

She pays the undisputed Rs 4,000 immediately through Pay Now, which stops Section 220(2) interest from accruing on that slice. For the Rs 40,000 she selects the disputed-TDS reason and enters the deductor's TAN and the exact Rs 40,000 figure. Had she done nothing for five months instead, Section 220(2) interest at 1% per month on the correct Rs 4,000 would have added only Rs 200, but on a demand she wrongly left unpaid the interest exposure would have been Rs 2,000 on the Rs 40,000 - a needless cost on tax she does not owe. Recording the disagreement freezes recovery on the disputed portion while the deductor's late Q4 statement flows through and the credit appears in her Form 26AS.

Practical checklist before you click

Before you touch the Response to Outstanding Demand screen for any DRN, reconcile three documents dated to the same assessment year: your filed ITR, your Form 26AS, and your Annual Information Statement. If a TDS gap is the cause, the fix usually lies with the deductor filing a correction statement, not with you paying. Where the demand is genuine, paying within the 30-day window under Section 220(1) is always cheaper than the 1% monthly interest under Section 220(2). If your only quarrel is which regime you were taxed under, model both on Oquilia's old vs new regime calculator before you respond, because the demand may simply reflect the default new regime applying where you expected the old one.

Keep the challan reference number for any Pay Now payment, and note that the portal timestamps your disagreement, which is your evidence that you contested within time. A partial response is not a partial admission; disagreeing on Rs 40,000 while paying Rs 4,000 does not weaken your case on the larger sum.

FAQ

What is a Demand Reference Number (DRN)?

A DRN is the unique identifier the portal assigns to each outstanding demand raised under Section 156 of the Income-tax Act 1961. Every response you record - agree, disagree in full, or disagree in part - is logged against that specific DRN under Login > Pending Actions > Response to Outstanding Demand.

Can I change my response after I agree the demand is correct?

No. Once you record that you agree a demand is correct, the portal locks that position and you cannot later disagree with it. Because interest under Section 220(2) runs at 1% per month on unpaid demands, taxpayers sometimes click agree in haste; treat the agree button as final and only use it when you have reconciled the figure.

How much interest does an unpaid demand attract?

Section 220(2) charges simple interest at 1% for every month or part of a month, running from the end of the 30-day payment window set by Section 220(1). On a Rs 40,000 demand left unpaid for five months, that is Rs 2,000. Paying the undisputed portion through Pay Now stops interest accruing on that amount.

Can the department adjust my refund against a demand I am disputing?

Yes, under Section 245 the department can set off a refund due in one year against tax payable in another, after prior intimation. Recording a disagreement against the DRN is what flags the amount as contested, so respond promptly rather than assuming your tax refund is protected.

The demand is only because my employer filed TDS late. What do I do?

Select "disagree" and choose the TDS-credit-mismatch reason, entering the deductor's TAN and the disputed amount. The real fix is the deductor filing a correction statement so the credit posts to your Form 26AS; once it reflects, CPC can revise the demand to nil. Do not pay tax that has already been deducted from your salary.

Should I pay the undisputed part before disputing the rest?

Yes. On a partial disagreement the portal requires you to pay the undisputed portion via Pay Now and then record reasons for the disputed part. Clearing a genuine Rs 4,000 shortfall of Section 234B/234C interest immediately stops the 1% monthly clock on that slice while you contest the rest.

Where can I verify the tax figure behind a salary demand?

Recompute your liability on Oquilia's income-tax calculator using your FY 2025-26 figures, then compare the TDS shown in your Form 26AS. A demand almost always traces to a credit gap or an interest shortfall, and knowing which one lets you split the DRN accurately.