Notice under Section 245

Adjustment of Refunds Against Tax Remaining Payable

Understanding Notice under Section 245 – Adjustment of Refunds Against Tax Remaining Payable

A Notice under Section 245 issued by the Income Tax Department of India notifies a taxpayer that a refund due to them may be adjusted against any tax, interest, exemplary, or penalty still outstanding. This action is considered when there are unresolved tax liabilities while a refund from another assessment year is being processed.

Example of Section 245 Notice

Imagine a taxpayer expecting a refund of ₹30,000 for the assessment year 2022-23 due to excess tax paid. However, they have an outstanding tax liability of ₹20,000 from the previous assessment year. In this case, the Income Tax Department may send a Notice under Section 245 indicating their intent to adjust the expected refund against the existing liability.

Details of the Process

When issuing a Notice under Section 245, the department must provide:

  • Reason for Adjustment: The specific details about the outstanding tax liability.
  • Amount: The amount that is outstanding and the amount of refund available.
  • Opportunity to Respond: The taxpayer can respond to the notice if they disagree with the adjustment or have already cleared the outstanding dues.
  • Taxpayer Details: This includes the name, taxpayer identification number (PAN), and contact details of the taxpayer to whom the notice is addressed.

  • Assessment Years Involved: The notice will specify the assessment years for which the refund is due and the year(s) in which the outstanding liabilities have occurred.

  • Details of Refund Due: This section details the amount of refund the taxpayer can receive for a particular assessment year.

  • Details of Outstanding Tax Liabilities: The notice will list any outstanding taxes, interest, penalties, or other pending dues against the taxpayer. Each liability is typically itemised to provide a clear understanding.

  • Proposed Adjustment: It will include a detailed account of how the refund will be adjusted against the outstanding liabilities, including the exact amounts used to offset the dues.

  • Reason for Adjustment: The legal basis for the adjustment will be cited, referring to Section 245. The notice might also include a brief explanation as to why this course of action is necessary.

  • Right to Respond: Importantly, the notice gives the taxpayer the right to respond if they disagree with the proposed adjustment. It will specify how and within what timeframe the taxpayer should respond—typically, this is within 30 days from the date of the notice.

  • Consequences of No Response: The notice outlines the consequences if the taxpayer fails to respond within the stipulated time. This usually means that the adjustment will proceed as proposed.

  • Contact Information: How do you contact the relevant tax office or officer for any queries or submission of a response to the notice?

Importance of the Notice

This notice is crucial because it impacts the taxpayer’s financial transactions, potentially reducing the expected tax refund by offsetting it against any existing liabilities. It is intended to ensure transparency in the process and allow the taxpayer to settle their accounts or dispute the adjustment before it is finalised.

Penalty and Prosecution

Penalty and Prosecution Not Directly Applicable:

  • Section 245 itself does not prescribe penalties or initiate prosecution. It simply allows the tax department to adjust a refund due to the taxpayer against any tax, interest, exemplary, or penalty that remains payable by the taxpayer.

Potential Scenarios Leading to Penalties or Prosecution:

  1. Failure to Pay Outstanding Dues: If, after the adjustment, there are still unpaid dues and the taxpayer continues to neglect the payment of these amounts, this could lead to penalties under other relevant sections of the Income Tax Act.
  2. Non-compliance with Other Tax Obligations: While Section 245 doesn’t inherently carry penalties, non-compliance with broader tax obligations, which may come to light during the adjustment process, could lead to penalties or prosecution.

Penalties Under Other Sections:

  • Section 221: If the taxpayer refuses to pay the tax demand, even after adjustments and clear communication, the assessing officer may impose a penalty, which can be as much as the tax unpaid.
  • Interest Charges: Additionally, interest under sections like Section 220(2) might be levied for the delay in settling the outstanding dues not covered by the refund.

Prosecution for Severe Non-Compliance:

  • While prosecution is rare and typically reserved for cases involving larger tax evasions or fraud, the tax authority can initiate prosecution under various sections of the Income Tax Act for non-compliance that involves deceit, significant underreporting, or repeated default.

What to Consider Upon Receiving the Notice

  1. Review and Confirm: Verify the details of the notice. Confirm whether the outstanding liabilities are accurate and whether the refund due is correctly calculated.
  2. Respond Promptly: If discrepancies or the liability has been settled, respond to the notice within the time frame provided. This is typically 30 days from the date of the notice.
  3. Keep Records: Maintain all relevant documentation regarding tax payments and communications with the tax department.
  4. Seek Professional Advice: If there is confusion or a significant amount of money, consulting with a tax professional may help you understand the best course of action.


A Notice under Section 245 is a procedural notification allowing for the administrative adjustment of refunds against outstanding tax liabilities. To avoid complications, taxpayers should pay close attention to such notices and ensure that all their tax liabilities are accounted for and cleared. Prompt and informed responses can help manage potential offsets effectively, ensuring that financial obligations are met and legal complications are avoided.


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