You filed your ITR, you are owed a refund — and instead of a credit in your bank, you receive a Section 245 notice. This means the Income Tax Department is proposing to adjust your current refund against an outstanding demand from a previous year before paying it out.
What Triggers a Section 245 Notice?
- An old tax demand exists on your profile from a prior assessment year
- The demand may have been forgotten, disputed, or you may be completely unaware of it
- The department runs automated checks matching your PAN across all years before releasing refunds
- Even a demand of ₹500 can trigger a hold on a refund of ₹50,000
Your Right to Object
The notice is a prior intimation, not a final order — you have the right to object within the time specified (usually 30 days). Do not ignore this notice. If you fail to respond, the department will proceed with the adjustment.
When to Accept the Adjustment
If the old demand is legitimate — a tax liability you actually owe — accepting the adjustment is often the cleanest resolution. It closes the old demand and reduces the refund by that amount. No interest liability accumulates after settlement.
When to Object
- The old demand was already paid but not reflected (upload the challan as proof)
- The demand arose from an incorrect assessment (file a rectification u/s 154 simultaneously)
- The demand is under appeal — mention the appeal reference number in your objection
- The demand relates to a different PAN or is a data entry error
How to Respond
Log in to the income tax portal, go to Pending Actions → Response to Outstanding Demand. Submit your objection with supporting documents. If the demand is under appeal, a stay application ensures the adjustment is held pending the appellate outcome.
Also read: complete guide to income tax notice types.