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How to Respond to a Demand Notice from Income Tax Department?

Updated: Nov 28, 2023


How to Respond to a Demand Notice from Income Tax Department - Taxbuddy

Filing your tax returns before the deadline is the best way to stay out of trouble, but does it guarantee safety for the long haul? You may still land in a problem if the details or total tax liability is mismatched. You may receive an 'outstanding tax demand' notice from the Income Tax Department under Section 156 of the I-T Act. The act addresses demands for interest, fine, penalty, or any other sum due to the department.

 

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After you file your return, the Income Tax Department officials scrutinise the tax declarations and look for any mismatches or discrepancies in the details. They issue an 'outstanding tax demand' if something is amiss. You need to understand the meaning of the notice and the steps to respond to it to avoid penalties and legal action. We have a comprehensive guide to help you address both concerns.


What is a Demand Notice from the Income Tax Department

After filing the Income Tax Returns, you may receive a notice from the IT department asking for details regarding mismatches. The authorities expect a proper response to this notice from taxpayers, seeking reasons and details regarding the contradictions in the assessments of your returns. The demand notice is issued for underreporting or not reporting a portion of your income under the following sections of the Income Tax Act, of 1961:

Notice can be issued under Section 245 regarding off-setting of refunds against remaining payable tax. Another demand notice may be issued under Section 156 for demands relating to interest, fine, penalty, or any other sum.

Steps to guide how to respond to a demand notice from the Income tax Department

When you get a Demand Notice, your jurisdictional Income Tax Officer (ITO) uploads it online. You can access it by logging into your e-filing account on the official website http://www.incometaxindiaefiling.gov.in/. Here are the steps you should follow to respond to a demand notice:


Step 1: Log in to your account with your ID and password.

Step 2: Click on “E-file” followed by “Respond to Outstanding Tax Demand”. After this, you will get details such as section code, assessment year, demand notification number, date when demand is raised, outstanding amount, uploaded by, rectification rights, and response – submit and view.

Step 3: To respond to the Demand Notice, you must click on “Submit” for the relevant assessment year. You will see three options: demand is correct, partially correct, or disagree with demand.

Options for responding to a demand notice

You must check all three options in the response to the Demand Notice section and choose the relevant one. Here are the detailed steps for each option:


Option 1: Demand is correct

  • On selecting this option, you will see a pop-up screen with the message: “If you confirm, demand is correct then you can’t disagree with the demand”

  • You click on the “Submit” button

  • A success message is displayed

  • The outstanding amount and the interest are adjusted against the refund if due. If not, you must pay the demand right away.

Option 2: Demand is partially correct

  • You see two fields to enter both the correct and incorrect amount

  • After entering the amounts in both fields, you need to choose a reason for stating that the calculation is partially correct.

In this case, you will have to provide documentation as evidence to validate your reason. Here are the potential reasons:

Demand already been paid

You will have to give the Challan Identification Number (CIN) with details like the serial number of the challan, BSR code, date of payment, and amount. If CIN is unavailable, mention that you have paid the demand by challan but CIN is unavailable. Provide all the necessary details such as the date of payment, amount, and remarks.

Demand reduced by rectification/revision

Give the date of the rectification/revision order, details of the jurisdictional ITO who rectified it, and the demand amount. Also, upload the effect order passed by the ITO.

Demand reduced by appellate order but appeal effect yet to be given

Give the date of the appellate order, the reference number of the order, and details of the appellate authority

Appeal and stay petition filed, stay granted, or installment granted

Give the date of filing of the