Income Tax Demand Notice Response Procedure
- Dipali Waghmode
- Dec 11, 2025
- 9 min read
When a taxpayer owes the Income Tax Department money in taxes, interest, or penalties, the Income Tax Department issues a demand notice under section 156. When the Centralised Processing Centre (CPC), Bengaluru, issues an intimation under section 143(1) requesting the tax owed from the taxpayer, it is also regarded as a notice of demand. For taxpayers who receive a demand notice, it is crucial to understand the implications, follow the correct response procedure, and do it on time to avoid complications.
Table of Contents
What is a Demand Notice?
The Income Tax department's formal notification to the taxpayer regarding the payment of taxes, interest, or penalties owed is known as a Demand Notice under section 156. After the demand notification, the payment must be made within 30 days.
Types of Demand Notice
The different types of demand notices or deemed demand notices are as follows:
Intimation under Section 143(1): According to section 156, the notification under section 143(1) is likewise regarded as a demand intimation. As confirmation that the department has completed processing the taxpayer's income tax return, the Central Processing Centre (CPC), Bengaluru, sends the intimation under section 143(1) to the taxpayer by email at their registered email address with the Income Tax Department. The ITR is processed automatically, and the taxpayer is informed of the results. According to section 143(1), an intimation is deemed a demand notice if it requests payment of a tax, interest, or penalty.
Intimation under Section 200A(1): The Central Processing Centre (CPC), Bengaluru, issues an intimation under Section 200A(1) about taxes, interest, or penalties due on the Income Tax Department's automatic processing of Tax Deducted at Source (TDS). According to section 156, it is also regarded as a demand notice.
Intimation under Section 206CB(1): The Central Processing Centre (CPC), Bengaluru, issues an intimation under Section 206CB(1) about taxes, interest, or penalties due on the Income Tax Department's automatic processing of Tax Collected at Source (TCS). According to section 156, it is also regarded as a demand notice.
Payment of Advance Tax under section 210(3)
In accordance with section 156, the Assessing Officer's demand notice for the payment of advance tax under section 210(3) is likewise regarded as a demand notice. This notice under section 210(3) is given when the Assessing Officer determines that the taxpayer's expected income warrants a higher advance tax payment than the taxpayer has made.
ESOP: The employees of qualifying start-ups must pay the tax due on the income from their ESOPs within 14 days after the earliest of the three occurrences listed below:
The employee's departure date from the company;
48 months have elapsed from the conclusion of the applicable assessment year in which the employee holds these shares; or,
The day the shares are sold.
The notification of the tax due on ESOPS's revenue is sent by the Centralised Processing Centre (CPC), Bengaluru. Only the tax liability amount is sent in the notification. Taxes on the revenue of ESOPs are postponed until the previously mentioned period.
Reasons for Receiving a Demand Notice
Prior to discussing how to react to income tax demand notices, it's critical to comprehend the initial reason for the notice's issuance. These are the most typical explanations.
Inconsistency between Tax Liability and Tax Paid: When the tax amount on your return differs from what the department has on file, this occurs. It can be the result of improper PAN connection or a delay in your employer's TDS reporting.
Inaccurate Income or Deduction Reporting: The department may issue a demand after evaluating your records if you fail to declare any portion of your income, such as interest from savings accounts or capital gains, or if you claim a deduction for which you are ineligible.
Arithmetic Errors in Return Filing: Occasionally, basic computation errors might lead to incorrect tax amounts when filing your Income Tax Return (ITR). These can result in a demand and are picked up during processing.
Non-Payment or Short Payment of Advance Tax/Self-Assessment Tax: You may receive a demand notice for the outstanding amount plus interest if you are obligated to pay advance tax or self-assessment tax but do not do so in full or on time.
What to Do After Receiving a Demand Notice?
A demand notice under section 156 of the Income Tax Act must be properly addressed and answered within the allotted period. The following steps should be taken:
To comprehend the specifics of the outstanding amount and determine whether it is accurate, you must carefully study the notice. Additionally, confirm that the notice is authentic.
Recognise whether the demand is entirely correct, partially correct, correct subject to modifications, or entirely incorrect.
Income Tax Demand Notice Response Procedure
A taxpayer may reply to an outstanding income tax demand notice under section 156 in one of four ways. The choices are listed below:
Correct demand
Partially correct demand
Disagree with the demand
Demand is incorrect, but agrees to the adjustment
You must thoroughly read the notice and comprehend the specifics of the outstanding amount before you can reply to the demand. After reviewing it, determine whether the income tax demand notice under Section 156 is legitimate. Afterwards, reply to the taxpayer using the aforementioned alternatives. Here are the steps to follow:
Step 1: Enter your user ID and password to access your income tax e-filing portal.
Step 2: Choose Pending Actions -> Response to Outstanding Tax Demand. The current status of each past or present outstanding demand will be displayed as pending payment or response, and you can see whether there are any requests against your PAN here.
Step 3: Select "Submit Response."
Case 1 - Demand is correct
If you agree with the demand and it is correct, just click on
Pay now to cover the demand directly.
Send in a response so that a preferred response can be attached.
If you agree with the CPC demand, you can select "demand is correct" after clicking "submit response" and then clicking "pay now." You can add the challan details if you have already made the required payment.
Case 2 - Disagree with demand wholly/partially
Choose the appropriate justification.
Enter the challan details after choosing the reason.
Check the overdue amount after entering the challan details, then click submit.
You will receive a confirmation of the response submission once you click submit.
You will also get an order stating that the demand is "nil" or "0" when it has been approved by the CPC.
Steps to Respond to Notice Using Different Options
Option 1: If you click on demand is correct
Step 1: On the Response to Outstanding Amount screen, choose the Demand is Correct option and the disclaimer if you accept the demand. "You cannot disagree with demand later on once you submit the response as "Demand is correct.”
Step 2: Click Pay Now after choosing the "Not paid yet" option on the same page. This will lead you to the e-Pay Tax page, where you can pay the tax.
Step 3: Following a successful payment, a Transaction ID and a success message are shown. For future reference, do make a note of the Transaction ID.
Step 4: Choose Yes, Already paid, and Challan has CIN if the demand has already been paid. Click "Add Challan Details."
Step 5: Choose Type of Payment (minor head), enter Challan Amount, BSR Code, and Serial Number, then choose Date of Payment and any optional remarks to add the challan data. To upload a copy of the challan, choose Attachment (which can be in PDF or application format), then click Save. A single attachment should be more than 5 MB in size. If you need to upload more than one document, combine them into a zipped package and upload that folder. A zipped folder's total attachment size should not exceed 50 MB.
Step 6: Once the challan details have been submitted, click Submit to submit both the response and the challan details.
Step 7: A Transaction ID and a success message are shown after successful validation. For future reference, please make a note of the Transaction ID as indicated above.
Option 2: Disagree with demand wholly/partially
Step 1: Choose "Disagree with the demand (Either in full or in part)" on the Response to Outstanding Amount page. Click "Add Reasons."
Step 2: Click Apply after choosing your disagreement's cause or reasons from the list. (You may choose more than one choice.) Here is a list of potential reasons for disagreement:
Demand has already been paid: In this case, three different alternatives are available based on applicability. Choose the appropriate option and then supply the Challan Identification Number (CIN), BSR code, date of payment, serial number of the challan, and amount, if applicable.
Demand has already been decreased by rectification or revision; include the order date, the amount of demand following rectification, the specifics of the AO, etc.
The appellate order has already decreased demand. Nevertheless, the department must grant the appeal effect. Give the date of the order and the appellate order that was issued (including the appellate authority's details and the order reference number).
An appeal has been filed: Depending on the status, one should choose whether the installment facility was approved, the stay was granted, or the stay petition was filed.
Rectification/updated return has been submitted at CPC: If you choose this option, please include more details about the filed revised return.
The rectification has been submitted to the assessing officer; include the application date and any observations the taxpayer may have made.
Others: If there is a reason other than those listed above, choose it and add a remark.
Step 3: Once you have chosen the relevant grounds for your dispute, go to the Response to Outstanding Amount page, select each of the reasons you specified in Step 2, and input the relevant information for each. The reason you provided the information will be shown in relation to the completed status.
Step 4: Click Pay Now to settle the remaining balance shown in the payment summary (if you partially disagree) after submitting the information for each of the chosen reasons.
Step 5: You can pay the tax after being sent to the e-Pay Tax page. You will be sent to the Response to Outstanding Amount page upon payment; click Submit to send in your response.
Step 6: To validate your submission, click Confirm.
Time Limit to Respond to the Demand Notice
After the notice is served, the assessee has 30 days to settle the demand. The assessing officer may, however, shorten the thirty-day timeframe in certain extraordinary circumstances with the joint commissioner's prior consent. If the application is submitted before the thirty-day period expires, the assessee may also request an extension of the payment period or permission to pay in installments from the AO.
Consequences of Delay in Demand Notice Response
Interest u/s 220(2): Interest due after 30 days at a rate of one percent per month or a portion of the month. Even if the Assessing Officer has granted the request for an extension of the payment period or permitted payment in installments, the assessee would still be responsible for paying this interest.
Penalty u/s 221: If the assessee is given a fair chance to be heard, the Assessing Officer may impose a penalty up to the sum specified in the income tax demand notice section 156. If the assessee can demonstrate that the default was justified, there won't be any penalties.
Conclusion
It's not the end of the world to receive a demand notice. It's just the department's method of highlighting a weakness. Reacting promptly and precisely is crucial, regardless of whether there is a mistake or a real deficiency. You may remain compliant and stress-free by knowing how to react to an income tax demand notice. You may make sure your tax trip stays easy and trouble-free by using official resources and knowing the fundamentals of income tax.
Frequently Asked Questions
Can I file a revised ITR after getting a demand notice?
If there is a difference in the return you filed on or before December 31st, or before the assessment is finished, whichever comes first, you may file a revised return under 139(5) of the Income Tax Act, 1961. You may submit an updated return, nonetheless, if the demand notice falls under Section 143(1). You cannot file an amended ITR if the demand notice is a scrutiny assessment order under section 143(3).
How can I check my demand tax notice online?
Enter your PAN, password, and Captcha code to access the Income Tax Site, then choose Respond to Outstanding Tax Demand under Pending Actions to view the tax demand notification online.
What happens if someone ignores the demand notice?
It will be used against you in court and you will have the right to a formal legal action.
How do I challenge income tax demand?
You can use Form 35 to file an online appeal on the e-Filing platform if you disagree with an order issued by an Assessing Officer (AO). The Commissioner of Income Tax (Appeals) or the Joint Commissioner (Appeals) hears the case.
What is the time limit for demand notice?
You have thirty days from the date of notice to settle the unpaid amount under the Income Tax Act. In extraordinary circumstances, the assessing officer may shorten or lengthen the time frame or permit payment in installments with the Joint Commissioner's prior consent.
What is the penalty for delay in response to a demand notice?
The following is the punishment under the demand notice: You shall be assessed 1% simple interest per month, or a portion of it, under section 220(2) if you do not pay the demand amount within 30 days of receiving the demand notice. Section 270A imposes a 50% penalty for underreporting income and a 200% penalty for misreporting income. For income up to Rs. 5 lakh, there is a late filing fee of Rs. 1000; for income over Rs. 5 lakh, there is a late filing fee of Rs. 5000.
Will the refund be adjusted to the outstanding demand?
The outstanding demand will be deducted from the return if no action is taken within the specified period to reply to the demand.
Can I not pay income tax notices?
No, failing to reply to the income tax notification would result in criminal prosecution, fines and penalties, and recovery processes.
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