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Alankar Mishra

January 6, 2025

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Exploring Section 245 of the Income Tax Act: Intimation, Notice and More

Indian tax laws create frameworks that guarantee compliance but also help the Income Tax Department in the quick recovery of dues. One such provision is Section 245 of the Income Tax Act of 1961 which enables the department to set off any amount which is a refund payable to the taxpayer against any tax which is due from that taxpayer. This mechanism is important for maintaining taxpayer’s self-restraint in economic behaviour. In this article, we’ll focus on the elements, effects and consequences of section 245 and how it is a provision of taxpayer rights along with what action a taxpayer is expected to take on receiving intimations or notices from the department relating to this section.

Understanding Section 245 of the Income Tax Act

According to Section 245, within the income tax set-off system, it is permissible to take credit for a refund that is due to a taxpayer against the tax that he owes. However, before such set-offs can be made the department is obliged to:

1. Inform the taxpayer regarding the intended offset through a notice in terms of Section 245.

2. Allow the taxpayer an opportunity to reply to the notice within a prescribed time.

This gives the system its proper working as well as provides the taxpayer with a reasonable opportunity to explain or dispute the demand.

Key Provisions of Section 245

Refused Payment: Let's check the situation when a taxpayer receives a refund for a particular assessment year, but there are outstanding tax dues either of that year or another year's assessment. In this case, the department has to be entitled to adjust the refund amount against the outstanding demand.

Issuance of Intimation: Before adjusting the refund, the department must issue an intimation under Section 245, specifying:

The amount of refund due.

Business of the outstanding demand.

The proposed adjustment.

Time to Respond: Generally, taxpayers are allowed a 30-day response period from the date of receipt of information. The proof of the outstanding to be proved is part of the allowance.

Final Adjustment: In overruling the bona fides of the response or the payment agreed to the adjustment, the department officer responsible for the investigation proceeds to complete the adjustment.

When is Section 245 Invoked?

The Income Tax Department invokes Section 245 in the following situations:

Refunds and Pending Demands: Refunds from the current assessment year or earlier are adjusted against outstanding tax dues.

Discrepancies in Tax Payments: Errors or Differences in self-assessment tax payments or advance ones.

Unresolved Tax Demands: demands arising from orders of scrutiny assessment, orders of rectifications or appeals.

TDS Mismatches: in the case of discrepancies between Form 26AS and the return of income filed.

Steps to Handle an Intimation Under Section 245

Receiving an intimation can seem daunting, but a systematic approach can help address it effectively. Here are the steps:

1. Review the Intimation

Access the intimation under the “View Notices and Orders” section.

Check the details of the refund and the outstanding demand.

2. Verify the Outstanding Demand

Navigate to the “Outstanding Tax Demand” section on the portal.

Cross-check the demand with your financial records, tax payments, and assessment orders.

3. Respond to the Intimation

If you agree with the demand:some text

Accept the adjustment and proceed to pay the balance amount (if any).

If you disagree with the demand:some text

File a response online under the “Response to Outstanding Tax Demand” section.

Provide supporting documents, such as proof of payment or corrected TDS details.

4. Rectify Errors (if applicable)

For demands arising due to errors or omissions, file a rectification request under Section 154.

5. Monitor the Status

After submitting your response, track the status of the demand and refund adjustment through the portal.

Taxpayer Rights Under Section 245

Even though Section 245 authorizes the respective authority to recover the dues, there are several taxpayer’s rights which include the following:

Right to Notification: The authorities are required to inform a taxpayer before making any adjustments to the refund.

Right to Answer: A taxpayer has the right to respond to the information and reject it giving the respective explanations.

Right to Correction or Appeal: The taxpayer has the right to correction in case of wrong notifications or overturning of the claim through an appeal.

Right to Timely Minutes: The department must attend to the responses and the refunds in a reasonable period.

Impact of Ignoring a Section 245 Notice

If a taxpayer fails to respond to a Section 245 intimation or notice within the prescribed timeline, the Income Tax Department can proceed with the adjustment of the refund against the outstanding demand. Ignoring such notices can lead to:

Loss of Refunds: Refund amounts may be adjusted without the taxpayer's consent.

Legal Implications: Non-compliance can result in penalties or further legal action.

Delayed Resolution: Failure to address the notice may cause delays in resolving discrepancies or obtaining refunds in the future.

Common Issues Faced Under Section 245

TDS Mismatches: Any differences between Form 26 AS and the Tax Return may lapse into erroneous demands.

Unclaimed Deductions: Claims of some deductions or exemptions were not made during the filing of the return.

Processing Delays: The time taken to correct the mistakes or settle disputes could also lead to longer adjustments.

Incorrect Demands: Non-Specific Claims Wanting To Be Raised Due To Clerical Errors Or Even Where Things Are Misunderstood Or Outdated Records Are Used.

How to Avoid Notices Under Section 245 of the Income Tax Act

Filing Proper Returns: Comply with the requirement of comprehensively reporting the income levels, the amount of deductions claimed, and the level of exemption availed.

Check Le TDS Tranquille: Verify TDS Form 26AS and AIS before filing any documents.

Seek Assistance for New Applications: Settle issues of outstanding demands comebacks or deficiencies instantaneously.

Get Assistance from Experts: Hire a taxable professional in case of complicated cases and several disputed claims.

Conclusion

The Income Tax Act’s Section 245 is essential for the department for recovery of dues as it ensures taxpayers are treated fairly. Knowing as to what are the provisions and rights that this section provides allows the taxpayers to effectively respond to intimations and notices. Also, accurate record keeping, TDS matching and proper response to the notices help the taxpayers deal with issues relating to Section 245 of the Income Tax Act with ease.

FAQs

What is an intimation under Section 245?

That's a communication from the Income Tax Department about a proposed adjustment of a refund of tax against any import duty on outstanding tax demands.

Can I dispute a demand under Section 245?

That’s correct, if you hold a dissenting opinion regarding the notification, you can respond to it and oppose the demand, however, corroborative documents should be presented.

What happens if I do not respond to the intimation?

In case you don’t respond within the established window, the department shall be able to proceed with the adjustment.

How can I check the status of my refund and demand adjustment?

Go to the Income Tax e-filing portal and then go to the section “Refund/Demand Status”

What if the demand under Section 245 is incorrect?

File a rectification request under Section 154 or appeal the demand with relevant supporting documents.

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