I Received a Notice Saying My Refund Is Adjusted Under Section 245. What Does It Mean?

Introduction

You're eagerly waiting for your Income Tax refund.

One day, instead of receiving the refund, you receive an email from the Income Tax Department stating that your refund has been adjusted under Section 245.

For many taxpayers, this can be confusing.

Has the refund been rejected?

Have you made a mistake while filing your return?

Do you now have to pay additional tax?

The answer is—not necessarily.

In many cases, the Department adjusts the refund against an existing tax demand relating to a previous assessment year. Understanding why this happens can help you respond appropriately and avoid unnecessary stress.

What Is Section 245?

Section 245 of the Income-tax Act empowers the Income Tax Department to adjust your current year's refund against any outstanding tax demand that is legally recoverable from you.

Simply put, if the Department believes that you owe tax for an earlier year, it may use your refund to recover that amount instead of issuing the refund directly.

However, before making such an adjustment, the Department is generally required to give you an opportunity to respond to the proposed adjustment.

Why Did You Receive This Notice?

There are several possible reasons:

1. An outstanding tax demand from a previous Assessment Year.
2. An old demand that is still pending in the Income Tax records.
3. A mismatch in tax credits or earlier tax calculations.
4. A demand created after assessment proceedings.
5. A demand that you may not even be aware of.

Sometimes, taxpayers discover old demands only after receiving a Section 245 communication.

What Should You Do?

The first step is simple—don't ignore the notice.

Instead:

1. Read the communication carefully.
2. Check which Assessment Year the demand relates to.
3. Verify the amount mentioned.
4. Review your Income Tax records for that year.
5. Compare the demand with your assessment orders and tax payments.

If the demand is correct, the adjustment may be valid.

If you believe the demand is incorrect or has already been paid, you should respond through the Income Tax e-filing portal within the prescribed time.

Can an Incorrect Demand Be Challenged?

Yes.

Sometimes demands remain outstanding because of:

1. Taxes already paid but not properly reflected.
2. Rectification applications pending.
3. Errors in tax credit.
4. Duplicate demands.
5. Incorrect adjustments made during processing.

If you disagree with the demand, you should gather the relevant documents and submit an appropriate response through the portal. In complex cases, professional advice can help ensure that the response is accurate and properly supported.

How Can You Avoid Such Situations?

Although every case is different, a few simple practices can reduce future complications:

1. Check your Income Tax account periodically for outstanding demands.
2. Preserve copies of assessment orders and tax payment challans.
3. Respond promptly to notices issued by the Department.
4. Reconcile tax credits before filing your return.
5. Maintain proper financial and tax records.

Good documentation often makes resolving such issues much easier.

Conclusion

A notice under Section 245 does not automatically mean that you have made a mistake.

It simply indicates that the Income Tax Department proposes to adjust your refund against an outstanding tax demand.

Before accepting or disputing the adjustment, verify the demand carefully. If the demand is genuine, the adjustment may be appropriate. If not, respond within the prescribed time and provide the necessary supporting documents.

Understanding the reason behind the notice is the first step towards resolving it.

Final Thought

"A delayed refund is frustrating—but an incorrect adjustment can be even more costly. Always verify the demand before accepting it."