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Income Tax Demand Notices and Clear Outstanding Demands

Section 156: Notice of Demand and Response Guidelines

Section 156: Notice of Demand: After completing the assessment or re-assessment process, the Income Tax Department takes on the responsibility of determining whether any additional amount needs to be paid by a taxpayer. In case, there is any outstanding liability, the department issues a demand notice under section 156 of the Income Tax Act. This notice specifies the interest, penalties, fines, and any other charges that the taxpayer must pay, along with a time limit for payment.

Notice for Outstanding Demand u/s 156?

If any order is passed under the Income Tax Act and there is an outstanding liability then a notice u/s 156 is issued to the taxpayer. Notice for the sum payable u/s 143(1), 200A (1), 206CB (1), etc., will also be considered as Demand Notice u/s 156. The taxpayer has to pay the amount specified in the notice within 30 days of receipt of the notice.

How to Respond to Outstanding Tax Demand Notice?

For submitting a response to outstanding demand, the taxpayer can follow below-mentioned steps:

Log in to the e-Filing PortalLog in to the e-Filing portal. Navigate to Pending Actions > Response to Outstanding Demand to view a list of your outstanding demands from the dashboard.

2. If you agree pay the demand amounts before submitting a response.

Click on Pay Now to make payment of outstanding demand.

3. Submit Response

If the taxpayer has not paid the demand or disagrees with the demand then they can submit their response accordingly.

Further, the taxpayer has the following options available for submitting a response to the demand notice issued u/s 156.

Agree with demand.
Fully disagree with demand.
Partially disagree with demand.

Option 1: Agree with Demand

Part A- Demand is correct but payment is pending.
If you agree with the demand notice, you can select the Demand is Correct option. Moreover, you get an opportunity to pay the dues from here only by selecting Not Paid Yet option. Once the payment is done, the response to the demand will be submitted automatically.

Part B: The demand is correct and amounts are already paid.
On the Response to Outstanding Amount page, select the Demand is Correct option and the disclaimer. Then click on the checkbox with Yes, Already paid and Challan has CIN, and Click on Add Challan Details.

Here, input the challan details. After entering the details, upload a copy of the challan (PDF). Once you save the challan details, the system will display a success message along with the transaction ID on the next tab.

Option 2: Fully Disagree with demand.

If you disagree with the demand notice, select Disagree with the demand (Either in full or in part) option and click on Add Reasons.

Then, select the reason(s) for your disagreement from the options and click Apply. (You can select one or more options)

After selecting the appropriate reasons for your disagreement, select each reason you listed on the Response to Outstanding Amount page and enter the appropriate explanation for disagrrement. Once the explanation is saved, submit the response.

Option 3: Partially disagree with Demand.

If taxpayer belives that the outstanding demand is partially correct then they need to submit the reason for disagreement. And for the part of the amount for which the taxpayer agrres they need to make payment.Once the payment is successful, the system will take you to the Response to Outstanding Amount page.In there submit your response. Once the submission is successful, the system will display a success message along with a Transaction ID.

Time limit to respond

The taxpayer has to pay the outstanding demand within 30 days from the date of service of notice. However, in a few cases assessing officers can reduce the period to 30 days where AO feels it is detrimental for the department to allow such a period for payment with the prior approval of the joint commissioner.

Further, the taxpayer can also make an application for an extension of the period or for making payment of demand in installments. But in such cases, the taxpayer has to make the application before the end of the 30 days.

Consequences of delay

Interest u/s 220(2) – Interest at a rate of 1% per month or part of the month will be payable after the expiry of 30 days. Such interest shall be payable by the taxpayer even if the AO has approved the application for an extension of the time period.
Penalty u/s 221 – AO can impose a penalty up to the amount of demand in the outstanding demand notice. However, the AO has to provide a reasonable opportunity of being heard to the taxpayers. Hence, if the taxpayer proves that the default was for bonafide reasons, no penalty shall be levied.

Most Important Query

How do I deal with an income tax demand notice?

Log in to e-Filing portal and click Pending Actions > Response to Outstanding Demand and you will be taken to Response to outstanding demand page. If there are demands outstanding against your PAN, the current status against each of the past / existing outstanding demands will be updated as Pending payment / Response.

What happens if I don’t pay income tax demand?

If the demand is not paid after the final notice, then the department will take action to recover the money by initiating recovery procedures.

What is the time limit for income tax demand notice?

30 days

The timeline to respond to the notice is 30 days from the day of receipt of the notice. If you do not respond within the aforesaid timeline, the assessing officer can consider this as consent and proceed with the assessment.

How to clear outstanding demand in traces?

How can a Deductor make the payment of outstanding demand on TRACES? Deductor can check the total Outstanding Demand from the account on TRACES. To pay the outstanding demand, go to TIN-NSDL website to pay Challan No. ITNS 281.

How do I disagree with demand income tax letter?

Option 3: Disagree with the demand

After choosing this option, explain why you disagree with the department’s call.
Give reasons for disagreement from the available options.
Submit your response, following which you will see a success screen with a transaction ID.

Can I ignore income tax notice?

You have 15 days to respond either by meeting your Assessing Officer or online. Ignoring the notice could lead to penalties and interest on unpaid tax.

Can I file a revised return after a demand notice?

If you notice a mistake in your submitted ITR, and it has not processed by CPC, you can submit a revised return. You can use the rectification request service on the e-Filing portal only against an order/notice u/s 143(1) from CPC.

Can income tax demand be paid in installments?

What is the time limit for demand notice? The Income Tax Act grants you 30 days from the date of notice to pay the outstanding amount. In exceptional cases, the assessing officer, with the prior approval of the Joint Commissioner, can reduce or extend the period or allow payment by installment.

Respond to Outstanding Demand FAQ

1. Why do I need to submit response to an outstanding demand?
The Income Tax Department may find some Outstanding Tax demand against your PAN. In order to confirm if the stated demand is correct, an opportunity is given to you to respond. If you do not respond to it, the demand will be confirmed and will be adjusted against your refund (if any) or show as demand payable against your PAN ( in case, no refund is due).

2. How do I know if there is any outstanding demand pending against my PAN?
You can check if there is any outstanding demand through the e-Filing portal. Log in to e-Filing portal and click Pending Actions > Response to Outstanding Demand and you will be taken to Response to outstanding demand page. If there are demands outstanding against your PAN, the current status against each of the past / existing outstanding demands will be updated as Pending payment / Response. Accordingly, you can click Pay Now / Submit Response. Additionally, you will receive a message on your email ID and mobile number registered on the e-Filing portal.

3. What can I do if I disagree with the amount of outstanding demand?
You can choose Disagree with demand (Either in Full or Part). After you select the option, you need to select from the list of reasons for which you disagree with the amount of demand. After you have selected from the list, you would need to provide details for each of the reasons before you submit your response. In case you partially disagree with the demand, you should pay the portion of the demand which is undisputed (i.e. with which you agree).

4. What can I do if the reason of disagreement with the outstanding demand is not listed?
You can select Others as a reason after you choose Disagree with demand (Either in Full or Part). After selection, you can enter the details for your reason and the applicable amount not payable under the mentioned reason.

5. Where can I view the past responses I submitted?
After you log in to e-Filing portal, click Pending Actions > Response to Outstanding Demand and you will be to the Response to outstanding demand page. Among the list of past and the existing outstanding demands click on View against the particular demand. You will only be able to see the View option for the demands for which you have already submitted at least one response.

6. While selecting reasons in Response to Outstanding Demand page, I am getting the message – No records found for revised/rectified return for the assessment year. What can I do?
Please try again. If the problem persists, please validate the Acknowledgement no. received after submission of your Rectification / Revised Return request.

7. How do I pay the outstanding tax demand?
You can make payment of your Income Tax Demand through the e-Filing portal in the following ways:

Directly pay tax by clicking the Pay Now option for the respective DRN (Demand Reference Number) on the Response to Outstanding Demand page; or
Using the Pay Now option while submitting the response to the outstanding demand (in case you agree or you partially agree with the outstanding demand).

8. What are the different ways in which I can make payment?
You can make payment through the e-Filing portal. You can use the following online methods to make tax payment:

Net-banking; or
Debit Card; or
Payment Gateway (using Credit Card/Debit Card of Non-Authorized Banks/Net Banking of Non-Authorized Bank/UPI)

You can use the following offline methods to make tax payment:

NEFT / RTGS (the Mandate Form generated may be submitted to the bank or used for online transfer using Net-banking); or
Pay over the Counter (through Cash / Cheque / Demand Draft).

Refer to the Make Payment Online and Make Payment Offline user manual to learn more.

9. What if I do not have the copy of the challan to be attached? Where can I find it?
You can reprint / regenerate your challan from your respective bank account using Net Banking or visiting the bank branch.

Received Income Tax Notice to Pay Additional Tax

If you’ve received a notice to pay additional tax, it’s important to understand how a rejection of your tax deducted at source (TDS) claim can lead to unexpected payments. The income tax department has a stringent system in place to check for discrepancies between TDS information reported in your income tax return (ITR) and the data supplied by the TDS deductor.

When the TDS is erroneously reported by a deductor, such as a bank that deducts TDS from a fixed deposit but fails to accurately report it, the tax department will deny the TDS claim. Consequently, if there are any outstanding taxes after the ITR filing, you will have to settle the tax liability without the benefit of the TDS credit not reflected in Form 26AS.

Taxpayer data is recorded in Form 26AS, Annual Information Statement (AIS), and Tax Information Summary (TIS) to simplify data verification for ITR filing.

In the event of a TDS mismatch, the taxpayer will typically receive a communication from the tax department, underscoring the need for accurate reporting of TDS data to prevent complications.

Tax Credit Mismatch in TDS Data: ITR vs. Form 26AS

Discrepancies between TDS data reported in your ITR and that in Form 26AS can occur for several reasons. Upon successful processing of your ITR, you will receive an intimation under section 143(1), which outlines the calculations submitted versus those accepted by the tax authorities. If your TDS credit claim is disallowed, the accepted calculation will reflect a higher tax liability.

Identifying a Tax Credit Mismatch

To verify whether there is a mismatch in your tax credits, follow these steps:

Navigate to the Tax Credit Mismatch section and input your relevant details.
Review the amounts for TDS, Tax Collected at Source (TCS), or any other challans.
Compare these amounts with those listed in Form 26AS.
A difference between your submitted amounts and those in Form 26AS indicates a tax credit mismatch.
You will see a message stating “There is a mismatch” if discrepancies exist.
If no discrepancies are found, it will display “Tax Credit Claimed is Fully Matched with Tax Credit Available in Form 26AS.

The income tax department stresses the importance of ensuring that the TDS details provided in Schedule TDS1 and Schedule TDS2 of the ITR form align with the information in Form 26AS, TDS certificates, or Form 16 issued by the deductor. Double-check that the Tax Deduction and Collection Account Number (TAN) of the deductor is correctly entered in the ITR.

Common Causes for Discrepancies in Form 26AS

Discrepancies may occur for various reasons, including:

Non-filing of TDS returns by the deductor.
Non-payment of TDS by the deductor.
Incorrect Assessment Year (AY) or wrong PAN provided.
Incorrect challan details submitted with the TDS returns.
Erroneous challan details reported by the deductor.
Misinformation uploaded by the bank.
Incomplete information about the taxpayer in the TDS return.
Mismatch between the reported and actual TDS deducted.

Typographical errors, such as incorrect PAN submissions or recording, may lead to incorrect TDS reflection in tax documents. Furthermore, data entry errors can exacerbate mismatches.

Occasionally, technical issues within the tax authority’s systems may also contribute to discrepancies between reported TDS and data shown in AIS or Form 26AS.

Steps to Correct TDS Data Mismatch

If the mismatch stems from non-disclosure by the taxpayer, submitting a revised or updated return is advisable to rectify the issue. Taxpayers can file a revised ITR or an updated ITR (ITR-U) if it is within the permissible time frame.

If Form 26AS is updated with the correct TDS amount, you can claim the credit. Experts suggest resolving the issue directly with the relevant TDS deductor.

In cases of mismatches due to non-payment of tax or incorrect disclosures, consulting with the related counterparty to rectify the issue is prudent to avoid prolonged disputes. If there are mismatches for other reasons, providing appropriate explanations is crucial.

When filing your ITR, confusion often arises regarding whether to wait for corrections in TDS data or to proceed with the available records. Generally, it is recommended to file the ITR with accurate TDS data based on your records, such as Form 16 or Form 16A. Doing so ensures that discrepancies can be clarified with the income tax department during the rectification process. For significant mismatches, taxpayers might want to wait for the deductor to submit a corrective return to ensure consistency in Form 26AS and AIS. However, if time is of the essence and the deductor has not made necessary corrections, you can still file the return using the TDS data available in Form 26AS or AIS. Be prepared for potential scrutiny or notices from tax authorities in case the mismatch continues.

Correcting Form 26AS Details

To correct details in Form 26AS, the income tax department suggests:

Submitting a correction statement via the NSDL website only for the records requiring updates.
If the error originated with the deductor, you should ask them to:
- File any pending TDS returns.
- Submit a revised TDS return if incorrect details were reported.
If the bank made a mistake (like in the tax amount or PAN), request them to rectify the errors in the challan information they uploaded.

Section 143(2) income tax notice reply format

Letter in response to formal first notice under section 143 (2) what does a income tax notice sent under section 143(2) mean?

When the income tax department finds discrepancies, minor or major, in your income tax returns, a notice will be issued under Section 143(2). The discrepancies can be under-reporting income or over-reporting losses. The notice is issued to make sure that you have not underpaid tax in any way.

What you should know about the notice?

You may receive a notice in the form of a PDF via email to your registered email address. It will also be sent to the postal address.
If you have not filed returns for the financial year, the assessing officer cannot issue a notice u/s 143(2). He must first issue a notice u/s 142(1), asking you to first file returns.
When you receive the notice u/s 143(2), you must produce all documents supporting the deductions, exemptions, allowances, reliefs, and other claims made while filing the returns.
You must provide proof related to all your income sources.
The assessing officer does a detailed enquiry.

How does this work?

Step 1: Your income tax return has been filed.

Step 2: A notice is issued under Section 143(2) by the assessing officer.

Step 3: You and/or your tax representative will place your arguments in front of the assessing officer and submit documents, declarations as required.

Step 4: After considering all submissions, a final order will be passed u/s 143(3) about the tax payable or refund receivable.

Types of notices u/s 143(2)

You will receive one of the following notices under Section 143(2):

Limited Scrutiny

This is a Computer-Assisted Scrutiny Selection (CASS) where cases are selected based on set parameters. These are cases with inaccurate returns information or mismatches. The scrutiny will be limited to the particular area of return mentioned in the notice such as the claim of foreign tax credit or sale of a property.

Complete Scrutiny

Complete scrutiny will be carried out on the return filed and all supporting documents. The cases will be flagged based on CASS. Though the scope of scrutiny is not limited to this type, the assessing officer cannot verify documents beyond the particular assessment year.

Manual Scrutiny

Cases are selected for complete scrutiny based on the criteria defined by the Central Board of Direct Taxes; the criteria may vary every year.

Time limit to issue the notice

The notice under Section 143(2) can be issued after an income tax return has been filed but within a period of six months from the end of the financial year in which the return was filed. For example, say, Mr Ram filed his returns on 31 July 2019 for the financial year 2018-19. The assessing officer can issue a notice under Section 143(2) only within 30 September 2020. This is because he can only issue the notice within a period of six months from the end of the financial year 2019-20, the financial year in which Mr Ram filed the returns.

What happens if you fail to respond?

You cannot take the notice lightly and ignore it. If you do not respond to the department within the stipulated time period,

You may be subject to a penalty of Rs.10,000 under Section 272A for each failure to respond.
The assessment officer may close the assessment with the information he has with the best judgement under Section 144.
A higher taxable income can be considered, resulting in a higher tax and penalty payable by you.
If you choose to dispute the higher tax demand, a minimum of 20% of the tax due must be paid before you file an appeal with higher authorities.
It may lead to prosecution; if found guilty, it may result in imprisonment.

Time limit to issue the final assessment order

Assessment Year (AY)	Time limit from the end of the (AY)
2017-18 or before	21 months
2018-19	18 months
2019-20 onwards	12 months

Sample Notice u/s 143(2)

LETTER IN RESPONSE TO FORMAL FIRST NOTICE U S 143(2)

Demand Notices from Income Tax Department Create Confusion for Taxpayers

The Income Tax (I-T) department has recently issued numerous demand notices to advance taxpayers regarding interest payments. These notices require taxpayers to settle interest charges up until the processing date of their Income Tax Return (ITR). This development has raised concerns among taxpayers and industry representatives alike.

The Gujarat Chamber of Commerce and Industry (GCCI) has taken action by addressing this issue in a letter to the Central Board of Direct Taxes (CBDT). The chairman of GCCI’s direct tax committee pointed out the complexities arising from these notices. He stated, “As per Section 140B(1), tax, interest, and fees must be paid before filing updated returns, and under normal circumstances, no demand notices should be issued. However, recent notices for interest under Section 234B were sent to several taxpayers, despite the taxes being settled before filing, causing confusion and unnecessary burden.”

Sources indicate that Section 234B of the Income Tax Act mandates interest payment for inadequate or non-payment of advance tax. Additionally, Section 140(1) requires assessees to clear income tax, interest, and fees before submitting updated returns, along with payment evidence.

Furthermore, Section 140B(3) stipulates that additional income tax—25% of tax and interest—is applicable for returns filed within 12 months, or 50% if filed within 24 months from the end of the assessment year. The updated ITR submissions must include payment of interest under Sections 234A to 234C as well as any applicable additional income tax.

The primary concern raised does not challenge the validity of the additional income tax rate or the computation method but focuses specifically on the calculation of interest under Section 234B. Recent issues have arisen as taxpayers who filed updated returns after settling their full tax liabilities—including income tax, additional income tax, fees, and interest—are now receiving demand notices following the processing of their returns.

According to the GCCI chairman, the updated return filing utility calculates interest under Section 234B only up to the date the return is filed. In contrast, the intimation issued under Section 143(1) computes interest under Section 234B up to the date of processing of the updated return. He explained, “As a result, taxpayers who met their full tax and interest obligations before filing the updated return are now being asked to pay additional amounts due to delays in the processing of their returns. This has led to confusion and undue financial burden on the affected taxpayers.”

To address this ongoing issue, he suggested an amendment to the Income Tax Act that would incorporate a new sub-section within Section 234B, specifically targeting interest computation for updated returns (ITR-U).

As this situation continues to evolve, affected taxpayers and industry bodies are hopeful for a swift resolution that clarifies the interest calculation and alleviates the financial stress placed upon taxpayers.

143(2) income tax notice reply format