Section 245 – Refund Adjustment Against Outstanding Demand
Section 245 of the Income Tax Act, 1961, grants the Income Tax Department the power to adjust any refund due to a taxpayer against any outstanding tax, interest, or penalty demand payable by the same taxpayer. This provision is a crucial mechanism for tax recovery, ensuring that the government can set off amounts due from a taxpayer against amounts it owes to them.
While this power streamlines the collection process, it also includes safeguards to ensure fairness to the taxpayer. Understanding Section 245 is vital for taxpayers who are expecting a refund but also have past tax liabilities.
Mechanism of Refund Adjustment under Section 245
The process generally involves the following steps, often automated through the Centralized Processing Centre (CPC):
- Identification of Refund: The Income Tax Department determines that a refund is due to a taxpayer, typically after the processing of their Income Tax Return under Section 143(1), or upon completion of an assessment or appeal order that reduces their tax liability.
- Identification of Outstanding Demand: Simultaneously, the system checks for any outstanding tax, interest, or penalty demands against the same PAN for any previous or current assessment years. These demands are typically those for which a Notice of Demand under Section 156 has been issued and remains unpaid.
- Issuance of Intimation/ Notice: Before adjusting the refund, the Assessing Officer (AO) is required to issue an intimation or notice under Section 245 to the taxpayer. This notice informs the taxpayer about the proposed adjustment, specifying the amount of refund available and the details of the outstanding demand against which it is proposed to be adjusted.
- Opportunity to Respond: The taxpayer is given an opportunity to respond to this intimation within a specified period (usually 30 days). In their response, the taxpayer can:
- Agree to the adjustment.
- Dispute the outstanding demand, providing reasons (e.g., the demand has already been paid, an appeal against the demand is pending, a stay of demand has been granted, or there's a mistake in the demand).
- Final Adjustment: After considering the taxpayer's response, or if no response is received within the given timeframe, the AO can proceed with the adjustment. The refund amount, or part of it, is set off against the outstanding demand. The taxpayer is then informed about the final adjusted refund (if any) or the remaining demand.
Key Conditions and Considerations for Section 245
Several important conditions govern the application of Section 245:
- Demand must be "payable": The outstanding demand must be legally payable by the taxpayer. This means it should be a confirmed demand (e.g., determined by an assessment order or penalty order) and not under dispute where a stay of demand has been granted.
- Opportunity of Being Heard: The proviso to Section 245 explicitly states that no adjustment shall be made without giving the taxpayer an opportunity of being heard. This is a critical safeguard against arbitrary adjustments.
- Demand must pertain to the same Assessee: The outstanding demand must be against the same PAN (Permanent Account Number) as the refund is due.
- Multiple Demands: If there are multiple outstanding demands, the AO has the discretion to decide which demand the refund should be adjusted against.
- Faceless Assessment Context: In the current faceless assessment regime, the intimation under Section 245 is typically sent electronically to the taxpayer's registered email ID and uploaded on their e-filing portal account. The response must also be submitted electronically.
Important Note: If you receive a notice under Section 245 and you have already paid the demand, or the demand is genuinely disputed and an appeal is pending/stay granted, it is crucial to respond within the given timeframe with all relevant evidence (e.g., payment challans, appeal receipts, stay orders).
Impact on Taxpayers
For taxpayers, Section 245 has several implications:
- Reduced Refund: The most direct impact is that the expected refund may be reduced or entirely set off if there are outstanding demands.
- Importance of Tracking Demands: It underscores the importance of regularly checking your income tax portal for any outstanding demands, even if you believe your assessments are complete. Unpaid demands from previous years can affect current year refunds.
- Timely Action on Disputed Demands: If a demand is disputed, it's vital to challenge it through appeals or rectification applications and, if necessary, seek a stay of demand from the appropriate authorities.
- Digital Platform Usage: Since most communications are digital, ensuring your email and mobile number are updated on the income tax portal is critical to receive timely intimations under Section 245.
Conclusion
Section 245 of the Income Tax Act is a statutory provision that allows the Income Tax Department to efficiently recover outstanding dues by adjusting them against refunds due. While it serves the government's objective of tax collection, it also provides taxpayers with an opportunity to dispute such adjustments before they are finalized. Proactive monitoring of tax demands and timely response to communications from the department are key to managing your tax affairs effectively and avoiding unintended adjustments of your refund.
Expecting a Refund but Received a Section 245 Notice? DisyTax Can Help!
A notice under Section 245 can be confusing, especially if you believe you have no outstanding demands. DisyTax specializes in navigating these situations, ensuring your refund is processed correctly.
Our services for Section 245 cases include:
- Verifying the accuracy and legitimacy of the outstanding demand cited in the notice.
- Assisting you in preparing and submitting a timely and comprehensive response to the Section 245 notice.
- Helping you with rectification applications or appeals if the underlying demand is incorrect or disputed.
- Guidance on maintaining updated tax records to avoid future discrepancies.
Don't let your refund get stuck. Contact DisyTax at 7065281345 for expert assistance with your Section 245 notice and to ensure your tax matters are resolved efficiently.