If the Income Tax Department has issued a tax notice under Section 245 of the Income Tax Act, 1961, an individual may not receive the income tax refund they requested when filing their income tax returns (ITRs), reported Economic Times.
The tax notice is dispatched to individuals who haven't settled their prior tax dues, serving as a notification that their income tax refund, whether in full or part, will not be disbursed to them. Instead, the department will utilize it to offset outstanding liabilities from previous years.
An illustration of this scenario involves an individual who had an unpaid tax liability in the assessment year 2002-03, and their income tax refund for the assessment year 2023-24 is presently being used to offset that outstanding debt.
The Income Tax Department via its official account on X (formerly known as Twitter) said, “There are a few cases in which refunds are due to the taxpayer, but previous demands are outstanding. Section 245(1) of the Income-tax Act, 1961, mandates providing an opportunity for the taxpayer to make a representation before adjusting the refund against an existing demand. Accordingly, taxpayers with existing demand(s) in the previous years are being intimated of the same.”
In the event that an individual receives a notice under Section 245, they will be informed through both SMS and their registered email address. Additionally, these individuals have the option to access their tax notices within their income tax e-filing account.
The Department may issue a Section 245 notice when the current year's income tax refund is being used to offset the outstanding tax liability from previous years. If the current year's tax refund exceeds the previous year's tax liability, the surplus refund (tax refund minus the tax liability) will be deposited into the individual's bank account. Conversely, if the prior income tax liability surpasses the current year's tax refund, the tax department will impose additional tax liability on the individual.
Two income tax notices
During the process of filing their ITRs, individuals typically request an income tax refund. Following the processing of the ITR, the Income Tax Department is obligated to dispatch an intimation notice under Section 143(1). This notice serves to communicate whether the Department has approved or rejected the individual's request for an income tax refund.
An individual will receive two notices from the Department. The first notice, issued under section 143(1), specifies the tax refund amount. The second notice, under section 245, states that the tax refund amount mentioned in the first notice (under section 143(1)) is being used to offset a previous tax liability for a specified assessment year. Typically, both of these tax notices are sent in quick succession, one after the other.
In the event that there remains an outstanding additional tax liability even after the current year's tax refund has been set off against it, a third notice under section 156 will be dispatched. This third notice serves as a tax demand notice if additional tax liability persists.
How to interpret an income tax notice issued under Section 245?
The tax notice can be accessed through the individual's account on the income tax e-filing portal. To view the notice, individuals must download it from the ITR e-filing portal, specifically within the 'e-proceedings' section under the 'pending action' tab.
Upon downloading the notice, it is crucial for the individual to review their name, PAN, and other personal information to confirm that the notice was indeed intended for them and not someone else. According to tax experts, when an individual receives a Section 245 notice, one of their initial actions should be verifying whether the notice correctly states their PAN and assessment year.
The notice will specify the year for which the outstanding demand has been raised. Additionally, an annexure will be appended to the tax notice, providing details on the income tax department's calculations that have led to the emergence of additional tax liability.
Deadline for responding to an income tax notice issued under Section 245
The response timeframe for an income tax notice under Section 245 is typically specified within the notice itself, commonly set at 21 days. If the taxpayer does not respond within this 21-day period, the income tax department will automatically offset the tax refund against the outstanding demand.
Procedure to address Section 245 income tax notice online
When an individual receives an income tax notice under Section 245, there are essentially two main choices:
- Accept the outstanding demand
- Contest the demand (completely or partially)
If the taxpayer concurs with the demand, they can proceed to make the payment for the specified amount. It's important to note that once the response is submitted as "demand is correct", it cannot be changed to disagree later. Therefore, the taxpayer must exercise caution when selecting their response option.
Alternatively, if the taxpayer chooses to disagree with the demand, whether in full or in part, a list of reasons for disagreement will appear. The taxpayer must then select from the list of 11 available options for expressing their disagreement with the demand.
If the assessee does not fully agree or only partially agrees to the adjustment, the case will promptly be forwarded by the Central Processing Centre (CPC) to the Assessing Officer (AO) for further review. Within a period of 21 days from the date of such referral, the AO must provide feedback to the CPC regarding whether the adjustment should proceed or not. In the case of partial adjustment, the AO must also specify the amount of demand to be adjusted for each relevant year.
If the AO disagrees with the individual's responses regarding the Section 245 income tax notice, the AO will provide feedback to the Central Processing Centre (CPC). This feedback will indicate whether the adjustment, involving the tax refund of the current year with the past year's tax liability, should be executed or if a partial adjustment is warranted. Additionally, it will specify the amount of tax liability demand for each year, if applicable.