Section 245 Refund Adjustment: What You Must Do
- Nimisha Panda
- Oct 13
- 9 min read
Section 245 of the Income Tax Act, 1961, allows the Income Tax Department to adjust any refund due to a taxpayer against pending tax demands from previous years. When the department identifies such outstanding dues, it sends a formal intimation under Section 245 specifying the amount to be adjusted and the assessment years concerned. Timely understanding and response to this intimation are crucial, as failure to act may result in automatic adjustment of refunds without recourse. Proper handling ensures compliance, avoids unnecessary disputes, and helps in efficient tax management.
Table of Contents
What is Section 245 Refund Adjustment?
Section 245 of the Income Tax Act, 1961, deals with the adjustment of refunds against any outstanding tax liability. Essentially, if a taxpayer has a pending tax demand under any assessment year, the Income Tax Department can adjust the amount of refund due from another year against the unpaid tax. This mechanism ensures that taxpayers do not receive refunds while simultaneously having outstanding liabilities. Section 245 is particularly relevant when there are mismatches, pending dues, or unapplied TDS credits. The intimation issued under this section communicates to the taxpayer that a portion or the entirety of the refund has been adjusted against outstanding taxes.
How Section 245 Intimation Works
When the Income Tax Department decides to adjust a refund under Section 245, it sends an intimation to the taxpayer. This intimation specifies the refund amount, the pending tax liability, and the portion of the refund being adjusted. The taxpayer receives details such as the relevant assessment years, challan numbers, and the amount utilized for adjustment. The intimation can be accessed online through the Income Tax e-filing portal, which also provides a mechanism to respond. It is important for taxpayers to review this intimation carefully, as it affects both the refund received and any pending tax obligations.
Steps to Respond to Section 245 Intimation
Responding to a Section 245 intimation involves several steps. First, the taxpayer should verify the details mentioned in the intimation, including the refund amount, pending tax liability, and the assessment years involved. Any discrepancies should be noted. The taxpayer then decides whether to agree with the adjustment or to dispute it. The response can be filed directly through the Income Tax Department’s e-filing portal. Proper documentation, including challan receipts or supporting evidence for payments, should be prepared to ensure that the response is complete and accurate.
Responding Online via Income Tax Portal
The Income Tax e-filing portal provides a dedicated section for responding to Section 245 intimations. Taxpayers need to log in using their PAN credentials, navigate to the ‘Pending Actions’ section, and select the relevant intimation. Once accessed, the portal allows the taxpayer to confirm, challenge, or provide additional information regarding the refund adjustment. The online process ensures that the response is tracked, and notifications are sent once the department processes the input. Using the portal also reduces the risk of delays or errors that may occur with offline submissions.
Agreeing or Disagreeing with the Adjustment
Taxpayers have the option to either agree or disagree with the adjustment under Section 245. If the taxpayer agrees, no further action is required except to confirm the adjustment online. If the taxpayer disagrees, it is necessary to provide valid reasons and supporting documentation. Disagreement could be due to incorrect pending tax calculation, misapplied payments, or other errors. The Income Tax Department reviews the disagreement and communicates the final decision. Properly documenting the reasons for disagreement is critical to avoid future disputes or delays in processing.
Paying Outstanding Tax After Intimation
In cases where the adjustment does not cover the full tax liability, or if the taxpayer disagrees partially with the adjustment, the remaining tax must be paid. Payments can be made online through the e-payment portal, using challans under the appropriate tax sections. Once the outstanding tax is paid, the taxpayer should update the payment details in response to the Section 245 intimation. This ensures that the adjustment is accurately reflected and avoids penalties or interest for late payment.
Important Points to Remember for Section 245
Important points to remember for Section 245 of the Income Tax Act are crucial for taxpayers who receive an intimation from the Income Tax Department regarding refunds or adjustments. First and foremost, always carefully check all the details mentioned in the intimation, including the assessment year, challan numbers, and other reference numbers. Accurate verification ensures that you are responding to the correct notice and prevents any confusion related to other years or transactions.
It is also essential to review any pending tax liabilities mentioned in the intimation before deciding whether to agree or disagree with the adjustments proposed by the department. Understanding the basis of the adjustments or discrepancies will help you take the right action and avoid unnecessary disputes.
Using the Income Tax e-filing portal to respond online is recommended, as it ensures faster processing and an official record of your response. The portal provides a streamlined process for accepting, disagreeing with, or raising objections to the intimation, reducing delays compared to offline methods.
Maintaining all supporting documentation related to your income, tax payments, TDS statements, and any correspondence is critical in case of disputes or adjustments. Proper records provide evidence to justify your claims and facilitate smooth resolution of any discrepancies.
Lastly, ensure that any outstanding taxes are paid on time. Timely payment helps avoid additional interest, penalties, or legal complications, and ensures compliance with the Income Tax Act. Careful attention to these points will help taxpayers handle Section 245 intimations efficiently and minimize potential issues.
Role of TaxBuddy in Managing Section 245 Notices
TaxBuddy can simplify the management of Section 245 notices by providing clear guidance and assistance at every step. The platform helps taxpayers track their refund adjustments, verify pending tax liabilities, and respond accurately to intimations. With TaxBuddy, users can access step-by-step instructions, prepare supporting documents, and even get expert assistance if discrepancies or disputes arise. This ensures that the taxpayer’s response is timely, accurate, and compliant with regulations, reducing the risk of delays or errors.
Common Mistakes to Avoid
Common mistakes during income tax filing or while responding to intimation notices can lead to delays, penalties, or unnecessary disputes with the Income Tax Department. Understanding and avoiding these mistakes is crucial for smooth compliance and accurate tax management.
One frequent error is ignoring the Section 245 intimation or delaying the response. Section 245 intimations are issued when the department adjusts excess tax paid against pending tax liabilities. Failing to respond promptly can lead to incorrect assumptions regarding refunds or liabilities and may cause delays in processing. Timely action is essential to ensure proper adjustment and to avoid unnecessary follow-ups or complications.
Another common mistake is failing to verify the accuracy of pending tax liabilities before responding. Taxpayers often overlook the need to cross-check their liabilities, TDS credits, and advance tax payments, which can result in incorrect responses or disputes. Proper verification ensures that the information submitted aligns with the records maintained by the tax department, reducing errors and processing delays.
Not maintaining proper documentation when disputing adjustments is also a critical oversight. Supporting documents such as bank statements, Form 26AS, payment receipts, or invoices are essential for validating claims or corrections. Without organized documentation, resolving disputes can become cumbersome, and the chances of rejection or delayed resolution increase significantly.
Overlooking partial adjustments and focusing only on full refunds is another mistake that taxpayers often make. Sometimes, the department adjusts only a portion of the excess tax against pending liabilities, and ignoring these partial adjustments can result in misreporting or missed follow-ups. Careful examination of each adjustment ensures that every portion is correctly accounted for.
Paying taxes without updating the portal or notifying the department about adjustments can create mismatches in the system. For instance, if an advance tax payment or TDS credit is not reflected in the portal, it may appear as an unpaid liability, leading to incorrect demands or interest charges.
Finally, misinterpreting the intimation and filing incorrect responses online is a common error. Taxpayers sometimes misunderstand the nature of the adjustment, the section under which it is applied, or the correct response format. Filing an incorrect response can trigger further notices, disputes, or delays in refunds. Careful reading, understanding the intimation, and seeking professional guidance when needed can prevent such errors.
By avoiding these mistakes, taxpayers can ensure a smoother, more accurate tax filing process and prevent unnecessary complications with the Income Tax Department.
Conclusion
Section 245 refund adjustments are an important mechanism for reconciling pending tax liabilities with refunds due. Responding accurately to these intimations is crucial to ensure correct adjustment and timely receipt of refunds. TaxBuddy provides a seamless solution to manage Section 245 notices, offering guidance, verification, and expert support throughout the process. For anyone looking for assistance in managing tax notices and ensuring accurate filings, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1: What is a Section 245 refund adjustment? A Section 245 refund adjustment is an action by the Income Tax Department where they offset your excess tax paid against any outstanding tax liability from previous years. This adjustment helps clear pending taxes, interest, or penalties before issuing a refund, ensuring that taxpayers do not receive refunds when they have dues in other assessments.
Q2: How do I receive a Section 245 intimation? You receive a Section 245 intimation from the Income Tax Department either through your registered email linked to your PAN or via your e-filing account on the Income Tax portal. The intimation specifies the amount of refund being adjusted, the pending liabilities, and instructions on how to respond if you disagree with the adjustment.
Q3: Can I dispute the adjustment mentioned in Section 245? Yes, taxpayers can dispute a Section 245 adjustment if they believe it is incorrect. Disputes can arise due to wrong calculation of past dues, errors in TDS credit, or misapplied payments. You can file your objection online through the Income Tax e-filing portal within the specified period mentioned in the intimation.
Q4: How do I respond to Section 245 intimation online? To respond online, log in to your Income Tax e-filing account, navigate to the “e-Assessment” or “Communications” section, and select the relevant Section 245 intimation. You can either accept the adjustment, partially accept it, or submit a dispute with supporting documents. Once submitted, you receive an acknowledgment for your response.
Q5: What happens if I agree to the adjustment? If you agree to the Section 245 adjustment, the Department offsets your refund against the pending liability. The remaining refund, if any, will be credited to your bank account. Agreeing to the adjustment is a straightforward process and usually results in faster processing of any residual refund.
Q6: How do I pay remaining tax after partial adjustment? If your refund is partially adjusted and you still have outstanding tax, you must pay the remaining amount online using the e-payment facility on the Income Tax Department portal. Payments can be made via net banking, debit/credit cards, or challan. Ensure that the payment is correctly recorded to avoid interest or penalties.
Q7: Can TaxBuddy help with verifying TDS and pending taxes? Yes, TaxBuddy provides tools to verify TDS credits, match them against your Form 26AS, and identify any pending taxes before filing. This helps ensure that you are aware of all adjustments, reducing errors and facilitating accurate responses to Section 245 intimations.
Q8: What documents are required to dispute Section 245 adjustments? To dispute a Section 245 adjustment, you need supporting documents such as TDS certificates, Form 26AS, payment receipts, proof of tax credits, and any prior correspondence with the Income Tax Department. These documents substantiate your claim that the adjustment is incorrect or partially incorrect.
Q9: How long does the Department take to process my response? Once you submit your response online, the Income Tax Department generally takes a few weeks to process it. The exact duration depends on the complexity of the dispute and the Department’s workload. You can track the status of your response through the e-filing portal.
Q10: What if I miss responding to the Section 245 notice? If you fail to respond within the stipulated time, the Department assumes you agree with the adjustment. The refund will be offset against pending taxes, and you may lose the chance to dispute the adjustment later. Timely action is therefore crucial to safeguard your interests.
Q11: Can I revise my response after submitting it online? Typically, once a response is submitted, it cannot be revised. However, if you discover an error or omission, you can contact the Income Tax Department through the portal or submit a fresh communication under the specified grievance mechanisms. Using platforms like TaxBuddy can help ensure accuracy before submission.
Q12: Does Section 245 adjustment affect future refunds? Yes, Section 245 adjustments can affect future refunds. If a portion of your refund is used to offset pending tax liabilities, the adjusted amount will no longer be available for future disbursement. It is important to review your dues and verify TDS credits to minimize the impact on upcoming refunds.
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