Section 245 Refund Adjustment Notice: How TaxBuddy Helps You Agree or Dispute the Set-Off
- Rashmita Choudhary
- Dec 31, 2025
- 8 min read
Section 245 refund adjustment notices are issued when the Income Tax Department proposes to set off a current-year refund against outstanding tax demands from earlier years. The notice outlines the refund amount, the pending demand, and the proposed adjustment, requiring a response within the specified timeline. Understanding how these set-offs work, how to verify the accuracy of the demand, and how to submit an objection is essential for ensuring refunds are not withheld incorrectly. With structured tools and expert-backed guidance, platforms like TaxBuddy simplify the entire process of reviewing, agreeing, or disputing the adjustment.
Table of Contents
What Is a Section 245 Refund Adjustment Notice?
A Section 245 refund adjustment notice is issued when the Income Tax Department intends to adjust a taxpayer’s refund against outstanding tax demands from any earlier assessment year. The notice specifies the refund amount, the pending demand, and the proposed set-off. Before making the adjustment, the department must provide prior intimation, allowing the taxpayer to review the demand and submit agreement or objection within the allowed timeframe. This ensures transparency in situations where older demands—often arising from mismatches, late filings, incorrect disclosures, or pending verifications—impact the refund due in the current year.
How Section 245 Set-Off Works Under the Income Tax Act
Section 245 empowers the Income Tax Department to identify any outstanding tax liability and adjust it against refunds that become due. Once a demand exists, such as those raised under Section 156, the system automatically matches it with the taxpayer’s refund for the current year. Before the adjustment is carried out, an intimation is issued through the e-filing portal, providing full visibility of the proposed set-off. The taxpayer must then decide whether the demand is correct based on records, earlier filings, and supporting documents. If the taxpayer agrees, the refund may be fully or partially adjusted. If the taxpayer objects, the adjustment is paused until the issue is reviewed.
How to Verify Outstanding Demands Before Responding
Verification is essential before submitting agreement or objection. Taxpayers must ensure the demand is valid, unpaid, and correctly reflected.
Key steps include: • Reviewing the demand under the ‘Pending Actions’ or ‘Response to Outstanding Demand’ section on the e-filing portal. • Checking Form 26AS, AIS, and past ITR acknowledgments for discrepancies. • Verifying whether the demand relates to earlier computational issues, unclaimed TDS, mismatches in income reporting, or errors in past filings. • Confirming if any appeal or rectification request is already pending for the relevant year. • Gathering documents such as bank statements, TDS certificates, and investment records to support objections where necessary.
Timely verification prevents inadvertent acceptance of incorrect demands and ensures accurate communication with the department.
Responding to a Section 245 Notice: Agree or Dispute
After reviewing the notice details, the taxpayer must choose between agreement and objection.
When agreeing: • Confirm that the demand is accurate and unpaid. • Select the ‘Agree’ option and proceed with confirmation. • The department will adjust the refund based on the accepted demand.
When disputing: • Select the ‘Disagree’ or ‘Partially Disagree’ option. • Provide supporting evidence such as TDS certificates, challans, corrected income details, or revised ITR workings. • Submit remarks explaining why the demand is invalid or incorrect. • If needed, file a rectification request or revised return to correct earlier errors.
A Section 245 response filed within the allowed window ensures the adjustment does not proceed without proper review.
Common Reasons for Invalid or Incorrect Demands
Demand mismatches arise for several reasons, often due to issues unrelated to the current year. Frequent triggers include:
• Incorrect or unreported TDS credits in earlier returns • Income mismatches between ITR and AIS/Form 26AS • Computational differences during assessment proceedings • Failure to respond to older notices or queries • Duplicate entries or outdated demands still reflected in the system • Demand raised despite pending appeals or rectification requests • Errors in tax challans, incorrect PAN reporting, or mismatched employer filings
Understanding these causes helps taxpayers identify whether the set-off proposal is accurate or requires objection.
How TaxBuddy Helps You Agree or Dispute Section 245 Set-Off
TaxBuddy simplifies the entire Section 245 process by breaking down the reasons for adjustment and guiding users through every step. The platform analyses demand details, identifies mismatches across Form 26AS, AIS, and past ITRs, and highlights discrepancies that may invalidate the proposed set-off. If the demand is incorrect, TaxBuddy assists in preparing objections, uploading documentary proof, and filing revised or rectification requests when needed.
For valid demands, TaxBuddy helps users confirm the adjustment quickly without errors, ensuring the refund is processed smoothly. Real-time expert assistance ensures clarity during verification, making it easier to handle refund adjustments without penalty risks or procedural delays.
Consequences of Not Responding to a Section 245 Notice
Ignoring a Section 245 notice leads to automatic adjustment of the refund, even if the demand is incorrect or outdated. This can cause delays in receiving refunds, unexpected financial adjustments, and additional compliance steps to recover wrongly adjusted amounts. If the demand relates to earlier errors, non-response may prevent timely correction and lead to further notices. In some scenarios, the department may initiate additional verification or assessment if discrepancies remain unresolved. Responding within the specified timeframe avoids unwanted complications and ensures fairness in refund processing.
Best Practices to Avoid Future Section 245 Adjustments
A few preventive steps reduce the chances of refund adjustments and demands resurfacing:
• Filing accurate, timely ITRs with complete disclosures • Matching income and TDS details with Form 26AS and AIS before filing • Filing rectification requests promptly whenever mismatches occur • Responding to earlier notices without delay • Maintaining clear records of investments, challans, and bank statements • Regularly reviewing outstanding demand status on the e-filing portal • Ensuring correct PAN linkage in all financial transactions
Using platforms like TaxBuddy helps maintain ongoing compliance and reduces the likelihood of future refund adjustments under Section 245.
Conclusion
Section 245 refund adjustments require careful review of past demands and timely responses to ensure refunds are not withheld incorrectly. With structured tools and expert-backed guidance, TaxBuddy enables accurate verification and smooth submission of agreements or objections. For anyone looking for assistance in tax filing, it is highly recommended 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 provides both self-filing and expert-assisted filing options to support every category of taxpayer. The self-filing system uses automated data extraction, pre-filled inputs, mismatch alerts, and step-by-step guidance to help users file accurately on their own. For those dealing with complexities such as capital gains, foreign income, business income, or historical mismatches, expert-assisted plans ensure professional review and personalised support. This flexibility allows each user to choose an approach aligned with their comfort level and financial situation.
Q2. Which is the best site to file ITR?
The best site to file an income tax return is one that offers accuracy, ease of use, secure data handling, and features that minimise errors. The Income Tax Department’s official portal enables direct filing, while platforms like TaxBuddy further enhance the experience through automated form filling, guided steps, and real-time validations. TaxBuddy is widely preferred for its ability to detect mismatches, auto-import data from Form 16, AIS, and bank statements, and provide seamless filing even for complex cases.
Q3. Where to file an income tax return?
Income tax returns can be filed through the official Income Tax e-filing portal or through authorised online filing platforms such as TaxBuddy. While the government portal handles direct submissions, platforms like TaxBuddy streamline the process with AI-driven checks, simplified workflows, automatic error detection, and expert review options. This ensures a smooth experience, especially for users who want clarity, accuracy, and transparent tax calculations.
Q4. What happens if a refund is fully adjusted under Section 245?
When a refund is fully adjusted, the amount is applied against outstanding tax demands without any balance credited to the taxpayer’s account. This adjustment takes place only after prior intimation. If the taxpayer believes the demand is incorrect, an objection must be filed promptly to pause the adjustment. If no response is submitted, the system proceeds automatically. Correcting the demand later may involve rectification requests or appeal procedures. Tools like TaxBuddy help review demands to prevent avoidable adjustments.
Q5. Can a Section 245 notice be issued if the demand is already under appeal?
Yes, Section 245 notices may still be issued even when a demand is under appeal. However, taxpayers can request that the adjustment be withheld by submitting appeal details, acknowledgments, or stay orders through the portal. The assessing officer may then pause the set-off until the appeal is resolved. TaxBuddy assists in drafting the appropriate response and preparing the documents needed to notify the authorities about the pending appeal.
Q6. What should be done if the demand mentioned in the Section 245 notice is incorrect?
If the demand appears incorrect, the taxpayer must select the ‘Disagree’ or ‘Partially Disagree’ option on the e-filing portal and submit supporting documents—such as TDS proofs, reconciliation statements, bank records, or corrected computations. Filing a rectification request under Section 154 or a revised ITR for the relevant year may also be required. TaxBuddy evaluates earlier filings, identifies mismatches, and prepares the necessary responses to dispute the incorrect demand effectively.
Q7. Does non-response to a Section 245 notice lead to automatic adjustment?
Yes, non-response results in automatic adjustment of the refund against the outstanding demand. Once the response period lapses, the department assumes consent and proceeds with the set-off. This may lead to the refund being withheld even if the demand is inaccurate. Timely action ensures the taxpayer retains the right to dispute and prevents unnecessary financial impact.
Q8. Can a taxpayer partially agree to a Section 245 refund adjustment?
A taxpayer can partially agree to the adjustment if only some parts of the demand are correct. For example, if one assessment year’s demand is valid and another is incorrect, partial disagreement may be submitted. The portal allows taxpayers to specify which demand amounts are disputed and upload supporting documents for those specific entries. TaxBuddy helps organise demand-wise proofs and draft clear explanations to support partial objections.
Q9. How does TaxBuddy help file objections for Section 245 notices?
TaxBuddy begins by analysing the demand, comparing it with Form 26AS, AIS, TDS statements, past ITRs, and bank entries to identify mismatches. Once discrepancies are found, the platform assists in preparing objection statements, compiling proofs, and submitting responses through the portal. If the issue arises from past errors, TaxBuddy supports filing revised or rectified returns. Continuous follow-up ensures the objection is processed without delays, reducing the risk of wrongful adjustments.
Q10. What documents are needed to dispute a Section 245 adjustment?
Documents vary based on the nature of the demand but commonly include Form 16, TDS certificates, challans for tax already paid, bank statements, investment proofs, previous ITR acknowledgments, AIS/TIS downloads, and any communication related to assessments or appeals. These records help demonstrate mismatches, incorrect computations, or double entries. TaxBuddy organises the evidence in a clear, AO-friendly format for smooth submission.
Q11. How long does the Income Tax Department take to resolve objections to Section 245?
Resolution timelines vary based on workload, nature of objections, and assessment complexity. In many cases, responses are reviewed within a few weeks, but complicated disputes may take several months. The adjustment is generally kept on hold until the objection is processed. Regular tracking is essential, and platforms like TaxBuddy provide updates and reminders to ensure the case progresses without administrative delays.
Q12. Can TaxBuddy help prevent future Section 245 adjustments?
Yes. TaxBuddy helps maintain compliance by ensuring accurate TDS mapping, proper income reporting, and timely rectification of past mismatches. Automated data comparison between AIS, Form 26AS, and the user’s records reduces the risk of unnoticed discrepancies. Expert review further strengthens the accuracy of filings, preventing incorrect demands from arising in future assessment cycles. Consistent monitoring and year-round support reduce the chances of refund adjustments under Section 245.
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