Section 245 Refund Adjustment Disputes: How TaxBuddy Helps You Contest or Confirm Demands
- Asharam Swain
- 20 hours ago
- 9 min read
Section 245 of the Income Tax Act allows the department to adjust a current-year refund against pending tax demands from earlier years. This adjustment is not automatic and requires prior intimation, giving taxpayers a chance to agree, partially agree, or dispute the demand. Many refund losses happen due to ignored alerts, mismatched records, or old demands that no longer apply. Understanding how Section 245 works, how to respond on time, and when to contest a demand helps protect legitimate refunds and avoid unnecessary financial loss.
Table of Contents
What Is Section 245 Refund Adjustment Under Income Tax Act
Section 245 of the Income Tax Act, 1961 allows the Income Tax Department to adjust a refund due to a taxpayer against any outstanding tax demand from earlier assessment years. These demands may relate to tax, interest, fee, or penalty that remains payable under the Act. The adjustment cannot be done silently. The law requires the department to first inform the taxpayer and provide an opportunity to respond before the refund is set off. This safeguard ensures that refunds are not used to recover incorrect, already-paid, or disputed demands without due process.
Why Income Tax Refunds Get Adjusted Against Old Demands
Refunds are commonly adjusted because the department’s systems detect pending demands linked to the taxpayer’s PAN. Many of these demands arise from earlier return processing, mismatches in tax credits, or incomplete rectification updates. In several cases, the taxpayer may not even be aware of such demands, especially if they relate to older years. Section 245 acts as a recovery mechanism, allowing the department to recover dues efficiently, but it also places responsibility on taxpayers to review and respond to such proposals promptly.
How the Section 245 Refund Adjustment Process Works
When a return is processed and a refund becomes payable, the Centralised Processing Centre checks whether any outstanding demand exists against the PAN. If a demand is found, an intimation under Section 245 is issued electronically through email, SMS, and the e-Filing portal. This intimation informs the taxpayer of the proposed adjustment and provides a window to respond. Based on the response submitted, the department may proceed with adjustment, pause it for verification, or drop the demand if found incorrect.
Taxpayer Rights Before Refund Is Adjusted
Taxpayers have the right to receive advance notice before any refund is adjusted. They are entitled to verify whether the demand is correct, whether it has already been paid, or whether it is under appeal or rectification. The department is obligated to ensure that only valid and enforceable demands are adjusted. Taxpayers also have the right to submit supporting documents and explanations, which must be examined before any final action is taken on the refund.
How to Respond to Section 245 Intimation on Income Tax Portal
The response process is fully online. After logging in to the e-Filing portal, taxpayers must check pending actions related to outstanding demands or e-Proceedings. Each demand is listed with its assessment year and amount. The portal allows three broad responses: agreeing with the demand, confirming that the demand is correct but already paid, or disagreeing with the demand either fully or partially. When disagreement is selected, valid reasons must be chosen and supporting documents uploaded. A transaction ID is generated after submission, serving as proof of timely response.
Common Reasons for Section 245 Refund Adjustment Disputes
Disputes frequently arise due to TDS mismatches, non-reflection of advance tax or self-assessment tax payments, or errors in earlier return processing. Pending rectification requests or revised returns that have not yet been processed can also lead to incorrect demands remaining active in the system. In some cases, demands continue to appear even after appellate relief has been granted, simply because backend records were not updated.
What Happens If Section 245 Intimation Is Ignored
If no response is submitted within the prescribed time, the system may treat the silence as deemed consent. In such cases, the refund is automatically adjusted against the outstanding demand. Once adjusted, recovering the refund becomes more difficult and usually requires filing rectification requests or grievances. Ignoring the intimation often leads to avoidable delays and administrative follow-ups that could have been prevented with a timely response.
How to Contest a Wrong Refund Adjustment Under Section 245
Wrong adjustments can be contested by selecting the option to disagree with the demand and providing clear reasons along with documentary evidence. This may include challans showing payment, acknowledgements of rectification filings, or appellate orders granting relief. If the refund has already been adjusted incorrectly, taxpayers may still seek correction through rectification applications or grievances, but the resolution timeline can be longer.
When It Is Better to Confirm the Outstanding Tax Demand
Confirming the demand is appropriate when it is clearly correct, undisputed, and payable. In such situations, allowing adjustment avoids further interest accumulation and compliance burden. However, confirmation should never be done casually. Once a demand is accepted as correct on the portal, it cannot be reversed later, even if new information emerges. Careful review of records is essential before selecting this option.
How TaxBuddy Helps With Section 245 Refund Adjustment Disputes
Handling Section 245 issues requires coordination between past filings, payment records, and portal responses. TaxBuddy supports taxpayers by reviewing the intimation, reconciling demands with historical data, and guiding the correct response strategy. By integrating securely with income tax records, the platform reduces manual errors and ensures that responses are filed with proper reasoning and documentation. This structured approach helps prevent loss of legitimate refunds due to incorrect acknowledgements or missed deadlines.
Mistakes to Avoid While Responding to Section 245 Demand
One of the most serious mistakes taxpayers make is selecting the option “demand is correct” without fully checking their past records. Once this option is submitted on the portal, it cannot be reversed. If the demand was actually paid earlier, reduced through rectification, or covered by an appeal order, the refund may still get adjusted permanently. A careful review of challans, Form 26AS, AIS, and earlier acknowledgements should always be done before confirming any demand.
Missing the response deadline is another common and costly error. Section 245 intimations are time-bound, and if no response is submitted within the specified period, the system may treat the silence as consent. In such cases, the refund is automatically adjusted against the outstanding demand. Recovering the amount later involves additional steps such as rectification or grievance filing, which often take much longer than responding correctly in the first place.
Uploading incomplete, unclear, or irrelevant documents weakens even a genuine dispute. For example, submitting challans without proper matching details, uploading unrelated orders, or failing to clearly link documents to the specific assessment year can lead to rejection of the response. The department relies heavily on documentary proof, and poorly presented evidence increases the chances of delay or adverse action.
Another frequent mistake is responding without understanding the assessment year, source, or nature of the demand. Some demands arise from automated processing, while others are raised by an assessing officer. Confusing one year’s demand with another, or responding to the wrong demand entry on the portal, often leads to incorrect submissions. This not only delays resolution but may also trigger further follow-ups or repeated adjustments.
Taxpayers also sometimes assume that filing a rectification or appeal automatically stops refund adjustment. Unless the dispute is properly recorded against the specific demand through the portal’s response mechanism, the system may still treat the demand as payable. Failing to select the correct disagreement reason or not mentioning pending rectification or appeal details can result in the refund being adjusted despite valid grounds for dispute.
A final mistake is treating Section 245 intimation as a routine system message and postponing action. Even though it is termed an intimation, its financial impact can be significant. Delayed or casual handling increases the risk of losing refunds that may otherwise be fully or partially recoverable. A structured, timely, and well-documented response remains the safest approach when dealing with Section 245 demands.
Final Takeaway on Handling Section 245 Refund Adjustments
Section 245 refund adjustments are not merely technical formalities. They directly impact cash flow and require informed decision-making. Timely review, accurate response selection, and proper documentation play a critical role in protecting refunds. A cautious and structured approach ensures that only genuine liabilities are settled while incorrect or outdated demands are effectively challenged.
Conclusion
Although the income tax system has become more automated, responsibility still lies with taxpayers to respond correctly to refund adjustment intimations. Missteps at this stage can result in permanent loss of refunds or prolonged follow-ups. Platforms that combine data review with guided responses help bring clarity and control to this process. For anyone looking for assistance in tax filing, it is advisable to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers both self-filing and expert-assisted filing options to suit different taxpayer needs. The self-filing option is designed for individuals with straightforward income profiles, where automation helps pre-fill data, validate entries, and flag common errors. For more complex cases involving multiple income sources, old tax demands, refund adjustments, or income tax notices such as Section 245, the expert-assisted plan assigns a qualified tax professional. This ensures that filings, responses, and disputes are handled with proper documentation and compliance checks.
Q2. Which is the best site to file ITR?
The Income Tax Department’s official e-Filing portal remains the primary platform for filing income tax returns in India. However, many taxpayers prefer assisted filing platforms for ease of use, guided workflows, and error reduction. Platforms like TaxBuddy integrate directly with the government portal and add layers such as document review, demand reconciliation, notice tracking, and deadline reminders. This makes the filing process more structured, especially when refunds, old demands, or compliance follow-ups are involved.
Q3. Where to file an income tax return?
Income tax returns are filed electronically on the government’s e-Filing portal using PAN-based login credentials. Taxpayers may file directly on the portal or use authorised intermediaries and platforms that connect securely to the same system. Assisted platforms do not replace the government portal but simplify interaction with it by managing forms, data validation, and responses to communications such as refund adjustments and outstanding demand intimations.
Q4. Is Section 245 a notice or an intimation?
Section 245 technically results in an intimation rather than a formal notice. However, in practical terms, it functions like a notice because it requires a time-bound response from the taxpayer. Failure to act on this intimation can lead to automatic adjustment of refunds against outstanding demands. Due to its financial impact, Section 245 intimation should be treated with the same seriousness as a statutory notice.
Q5. Can a refund be adjusted without informing the taxpayer?
No. The law requires the Income Tax Department to provide prior intimation and a reasonable opportunity to respond before adjusting a refund under Section 245. This safeguard ensures that taxpayers can verify whether the demand is correct, already paid, or disputed. Any adjustment made without such intimation can be challenged through rectification or grievance mechanisms.
Q6. Can a disputed demand be adjusted against a refund?
Disputed demands should not be adjusted against refunds when the dispute has been properly recorded on the e-Filing portal with supporting documents. This includes demands under appeal, stayed by appellate authorities, or pending rectification. Timely submission of disagreement and evidence is critical, as non-response may result in the system treating the demand as undisputed.
Q7. What documents are needed to dispute a Section 245 demand?
Supporting documents depend on the reason for dispute. Common documents include tax payment challans, Form 26AS extracts, acknowledgements of rectification or revised returns, and appellate orders granting relief. Clear and relevant documentation strengthens the case and helps the department verify the claim faster, reducing the risk of wrongful refund adjustment.
Q8. How long does it take to resolve a Section 245 dispute?
There is no fixed statutory timeline for resolving Section 245 disputes. Resolution depends on factors such as the nature of the demand, verification requirements, and workload at CPC or the assessing officer level. Simple cases involving payment proof may be resolved faster, while disputes linked to appeals or rectifications can take longer. During this period, refund adjustment is usually kept on hold.
Q9. Can a refund already adjusted be recovered?
Yes, refunds that were wrongly adjusted can be recovered through rectification requests, grievances on the e-Filing portal, or follow-up with the assessing officer. However, the recovery process may involve additional time and documentation. Preventing incorrect adjustment by responding correctly at the intimation stage is always more efficient than seeking recovery later.
Q10. Does Section 245 apply to non-residents?
Yes. Section 245 applies to all taxpayers, including non-residents and foreign entities, as long as there is an Indian tax refund and an outstanding demand linked to the PAN. The response mechanism and rights remain largely the same, though non-residents often act through authorised representatives due to documentation and procedural complexity.
Q11. Is interest payable if refund is delayed due to adjustment?
Interest on delayed refunds depends on whether the delay is attributable to the taxpayer or the department. If the refund is held up due to incorrect or delayed response by the taxpayer, interest may not apply. However, where delay arises from departmental processing or wrongful adjustment, interest under applicable provisions may be claimed through rectification.
Q12. Is professional help necessary for Section 245 cases?
Professional assistance is not mandatory for all cases. Straightforward demands that are clearly correct can be handled directly through the portal. However, older demands, high-value refunds, partial disputes, or cases involving appeals and rectifications often benefit from professional review. Platforms like TaxBuddy help centralise records, evaluate the correct response option, and ensure that submissions are accurate and timely, reducing the risk of irreversible errors.
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