How To · Income Tax · Section 245

How to Respond to an Income Tax Adjustment Notice Under Section 245

Updated for 2026 · Claw Editorial

A notice under Section 245 is not a demand for fresh tax. It tells you that a refund due to you for one year is proposed to be adjusted, set off, against a tax demand the department says is outstanding for another year, and it gives you a chance to respond before the set-off is made. The catch is that the "outstanding demand" is often old, already paid, already reduced in appeal, or simply wrong, and if you stay silent the refund is quietly swallowed against a demand you may not even owe. This page explains what a 245 notice is, how to check the outstanding demand it refers to, how to agree or disagree on the e-filing portal within the window, how to get a stale or wrong demand corrected, and the appeal route if the underlying demand is itself wrong. This is general guidance, not tax advice. Last verified October 2026.

01What a 245 notice is

Section 245 gives the department the power to adjust (set off) a refund due to you against any tax that remains payable by you. Before doing so, it must give you an intimation and an opportunity to respond. That intimation is the 245 notice: it lists the refund for one year and the demand for another, and proposes to net them off.

The important point is that the adjustment is only proposed until you respond or the window closes. Treat it as a chance to stop a wrong set-off, not merely a statement of fact. For the background, see the Section 245 explainer.

02Check the outstanding demand

The whole question is whether the demand it refers to is real. On the e-filing portal, open the Response to Outstanding Demand service and look at the demand by assessment year:

• Is this demand one you actually owe, or was it already paid?
• Was it reduced or deleted in an appeal or a rectification that the system has not updated?
• Is it a stale demand from an old year that should no longer stand?
• Is the amount correct, including any interest?

Pull the challans, the appeal order and any rectification order for that year before you respond, because your reply has to be backed by proof.

03Respond on the e-filing portal

• Step 1. Log in at incometax.gov.in and open Pending Actions, then the Section 245 intimation or the Response to Outstanding Demand service.
• Step 2. For the demand, select Demand is correct, Demand is partially correct, or Disagree with demand.
• Step 3. If you disagree, choose the reason (already paid, reduced in appeal, rectification pending, demand not correct) and upload proof such as the challan or appeal order.
• Step 4. Submit within the window, commonly 30 days. If you do not respond, the department may proceed to adjust the refund.

04Get a wrong or paid demand corrected

If the demand is stale, already paid, or already reduced, the fix is to get the department record corrected, not just to disagree once:

• Already paid: report the challan details so the demand is marked paid.
• Reduced or deleted in appeal: ask the Assessing Officer to give effect to the appeal order; the demand should fall away.
• Apparent error: file a rectification under Section 154 against the order that created the demand.
• No response from the officer: follow up in writing and keep the acknowledgements, as these matter if you escalate.

Correcting the underlying record is what stops the same demand coming back to grab next year's refund too.

05If the demand itself is wrong

Sometimes the demand is not stale but genuinely contested: the assessment that created it is wrong. In that case disagreeing on the 245 portal and filing rectification are stop-gaps; the real remedy is to challenge the assessment that produced the demand.

If an appeal against that assessment is already pending, you can also apply for a stay of the demand so the refund is not adjusted while the appeal is decided. Mention the pending appeal in your 245 response.

06The appeal route

• First appeal: against the assessment order that created the demand, to the CIT(Appeals) in Form 35, generally within 30 days of that order.
• Stay: apply to stay recovery and adjustment of the disputed demand while the appeal is pending.
• Second appeal: to the Income Tax Appellate Tribunal (ITAT) if the CIT(A) order is against you.
• Beyond ITAT, a substantial question of law goes to the High Court and then the Supreme Court.

A 245 adjustment by itself is not usually the thing you appeal; you appeal the assessment that created the demand. Confirm the current appeal form, fee and limitation before filing.

07Track an appeal with Claw

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Where the demand behind a 245 adjustment is contested, the real fight is the appeal against the assessment, which can run through the CIT(Appeals) and the Income Tax Appellate Tribunal. You can create a FREE Claw account and track the matter across the forum that hears it, up to the ITAT. Claw covers 9,102 courts, benches and forums including ITAT benches and the High Courts, returns results in under 5 seconds, and its judgment search spans 30 crore+ judgments (Supreme Court from 1950 and High Courts from 1990), so your counsel can see how similar demand and refund-adjustment disputes were decided. Claw does not train its AI models on your documents. A clean search result only means nothing was found on the forums and date searched, and this is general information, not tax or legal advice.

To find how similar matters were decided, run a case search across Indian courts. Before you onboard a vendor, a litigation check before onboarding a vendor uses the same engine.

08Sources and further reading

• Income Tax e-filing portal: incometax.gov.in
• e-filing login: eportal.incometax.gov.in
• Income Tax Appellate Tribunal: itat.gov.in
• eCourts (High Court case status): ecourts.gov.in
• Claw: clawlaw.in

This page is general information for an Indian audience, not tax or legal advice. Confirm current forms, windows and fees on the official portal and take professional advice on your demand.

09Frequently asked questions