Section 245 intimation: how to respond before your refund is adjusted against a tax demand

You filed your return, the portal showed a refund was due, and then an email landed titled "Intimation under Section 245". Instead of the money reaching your bank account, the Income Tax Department is telling you it intends to keep some or all of that refund to settle an old tax demand. This is one of the most common refund delays reported on the e-filing portal, and it is entirely process-driven: respond correctly within the window and you keep control of your money; ignore it and the adjustment happens automatically. Here is exactly how Section 245 of the Income-tax Act 1961 works, and how to respond before the set-off is final.

The Scenario

Meet Rohit, a salaried employee whose FY 2025-26 income-tax return showed a refund of Rs 28,100 because his employer deducted more TDS than his final liability. On 5 August 2026 he received a Section 245 intimation stating that an outstanding demand of Rs 18,500 from Assessment Year 2021-22 was still on record, and that the department proposed to adjust the refund against it.

Rohit's confusion is typical. He does not remember any demand from four years ago, he is not sure whether he already paid it, and the intimation gives him a limited period to respond before the department treats the demand as correct and sets it off. Per the department's official guidance, if you do not respond, the demand stands confirmed and is adjusted against any refund due (Income Tax Department, "Response to Outstanding Demand", incometax.gov.in). The three questions Rohit must answer within the response window are: is the demand genuine, has it already been paid, and does he agree to the adjustment?

The stakes are concrete. Rohit's Rs 28,100 refund shrinks to Rs 9,600 if the full Rs 18,500 is adjusted. If the old demand is actually wrong -- a mismatch the department never corrected -- staying silent costs him the entire Rs 18,500 he never owed.

Statutory Answer

Section 245 of the Income-tax Act 1961 empowers the Assessing Officer, the Commissioner, or the CPC to set off the amount of a refund against any sum "remaining payable" by the taxpayer under the Act. The single procedural safeguard that protects you is built into the same section: the set-off can only be made "after giving an intimation in writing to such person of the action proposed to be taken." That written intimation is the Section 245 notice sitting in your inbox, and the law requires it before -- not after -- your refund is touched (indiacode.nic.in, Income-tax Act 1961, Section 245).

This prior-intimation requirement is the whole point. The department cannot silently swallow a refund; it must tell you first and give you a chance to object. On the e-filing portal the notice appears under Pending Actions > Response to Outstanding Demand, where you can download the latest or earlier Section 245 notices sorted by financial year (incometax.gov.in). You then choose one of two broad positions.

Position one: "Demand is correct." You accept the demand. You may attach challan details of tax already paid -- the BSR code, challan serial number, payment date and amount -- and upload the challan as a single attachment of up to 5 MB (incometax.gov.in). A critical warning applies here: once you submit "Demand is correct", you cannot disagree with that demand later. This is a one-way door, so use it only when you are certain.

Position two: "Disagree with Demand (either in full or in part)." You dispute the demand and select the reason -- for example, the demand was already paid, it is under rectification, an appeal is pending, or it was raised on a return you have since revised. You may disagree with the whole demand or only a portion of it, paying the undisputed part and contesting the rest.

Two related interest provisions frame the money at stake. Under Section 220(2), a demand not paid within 30 days of the notice of demand attracts simple interest at 1% for every month or part of a month it stays unpaid. Working the other way, Section 244A entitles you to interest at 0.5% per month on a refund the department wrongly withholds. If the department confirms a demand that turns out to be invalid, Section 244A interest is your compensation for the delay (indiacode.nic.in, Income-tax Act 1961, Sections 220 and 244A).

Worked Resolution

Take Rohit's FY 2025-26 numbers under the new tax regime and follow the money through the adjustment. His computation, using the FY 2025-26 slabs, standard deduction and cess, looks like this.

Rohit's income of Rs 13,25,000 is above the Rs 12,00,000 threshold, so the Section 87A rebate (a maximum of Rs 60,000 in the new regime for FY 2025-26) does not apply to him. His refund of Rs 28,100 is real and verifiable -- you can reproduce it on the income-tax calculator or cross-check the regime choice on the old vs new regime tool.

Now the Section 245 intimation proposes to adjust the AY 2021-22 demand of Rs 18,500. Rohit's response path decides the outcome, as the table below shows.

The decisive move for Rohit is to open his AY 2021-22 record before choosing. If he finds a challan proving he paid the Rs 18,500 back in 2021, he selects "Disagree with Demand", enters the BSR code and challan serial number, uploads the challan PDF under the 5 MB limit, and the full Rs 28,100 should be released once CPC verifies it. If the demand is a genuine tax he never paid, accepting it and receiving Rs 9,600 is the honest and cheaper outcome, because Section 220(2) interest at 1% per month keeps accruing on any confirmed demand left unpaid.

If the demand exists only because of a mistake the department can see on its own record -- a TDS credit it failed to give, or an arithmetic error in a Section 143(1) intimation -- the correct instrument is a rectification, not a Section 245 disagreement alone. Our explainer on Section 154 rectification walks through fixing a mistake apparent from record, and a successful rectification that deletes the demand removes the very basis for the set-off. You can also confirm your deducted tax against Form 26AS using the TDS calculator so your challan and credit figures match before you file the response.

The timing discipline matters more than anything else. The intimation specifies the period within which you must reply, and once that window closes with no response, the department is entitled under Section 245 to treat the demand as correct and complete the set-off. There is no separate reminder. Diarise the response deadline printed on your own intimation the day it arrives.

FAQ

What happens if I ignore a Section 245 intimation entirely?

If you file no response within the period stated in the intimation, the department confirms the outstanding demand and adjusts it against your refund automatically (incometax.gov.in, "Response to Outstanding Demand"). In Rohit's case a Rs 18,500 demand would reduce his Rs 28,100 refund to Rs 9,600 with no further notice. Silence is read as agreement, so never treat the intimation as junk mail.

Can I disagree after I have already selected "Demand is correct"?

No. The portal is explicit that once you submit "Demand is correct", you cannot disagree with that demand later (incometax.gov.in). This is why you should open your assessment record for that year, check for a paid challan, and confirm the figure before choosing. If there is any doubt, "Disagree with Demand" preserves your options while "Demand is correct" closes them permanently.

The demand was already paid. What proof does the portal need?

Select "Disagree with Demand", choose the reason that the demand has already been paid, and enter the challan details: the BSR code, challan serial number, date of payment and amount. You then upload a copy of the challan as a single attachment not exceeding 5 MB (incometax.gov.in). CPC verifies the challan against its records before releasing the withheld portion of your refund.

Will I get interest on the refund if the department wrongly held it back?

Yes. Under Section 244A of the Income-tax Act 1961, you are entitled to interest at 0.5% per month on a refund that is delayed or wrongly withheld (indiacode.nic.in). Conversely, under Section 220(2), any demand you genuinely owe but leave unpaid beyond 30 days of the notice of demand attracts interest at 1% per month, so a valid demand only gets more expensive with time.

Can the department adjust a refund against a demand that is under appeal?

The set-off power under Section 245 applies to sums "remaining payable", but where a demand is disputed you should record that on the portal by selecting "Disagree with Demand" and citing the pending appeal or stay. Filing the disagreement with the appeal reference is what puts your objection on record before the CPC completes the adjustment; an unrecorded appeal does not stop an automatic set-off.

Can I disagree with only part of the demand?

Yes. The portal allows you to disagree with a demand either in full or in part (incometax.gov.in). If Rs 8,500 of an Rs 18,500 demand is valid and Rs 10,000 is not, you accept the Rs 8,500 and contest the Rs 10,000, so only the disputed Rs 10,000 stays in play while the rest is settled.

Which year's demand can be adjusted against this year's refund?

Section 245 permits set-off against any sum remaining payable under the Act, regardless of the year it relates to. Rohit's FY 2025-26 refund was proposed for adjustment against an AY 2021-22 demand -- a four-year gap is entirely valid. Always download the specific notice by financial year from Pending Actions > Response to Outstanding Demand so you know exactly which year's demand you are responding to (incometax.gov.in).