The Income Tax Department may issue a demand notice if they determine that additional tax is due under your PAN. This could be due to various reasons such as discrepancies in tax filings, errors in tax credit claims, or adjustments post-assessment. It is essential to understand why you have received such a notice and how you can respond effectively.
Why Should You Respond to an Outstanding Demand?
Ignoring an outstanding demand can lead to the automatic confirmation of the liability. This may result in the adjustment of the demand against any refunds due or it being reflected as a pending liability in your tax records. Responding in a timely manner helps in either clearing or rectifying the demand based on its accuracy.
How to Check for an Outstanding Demand
To verify any pending demand:
Log in to the e-Filing portal.
Navigate to Pending Actions > Response to Outstanding Demand.
The outstanding demand page will display details of past and existing demands, allowing you to either pay now or submit a response.
Notifications are also sent via email and SMS to your registered contact details.
Common Reasons for Outstanding Tax Demands and Corrective Measures
| Reason for Demand | Cause | Corrective Action |
|---|---|---|
| Mathematical or Clerical Errors | Discrepancies in return calculations leading to underpayment of tax. | Cross-verify the figures in your return and rectify errors by filing a revised return or rectification request. |
| Disallowed Deductions | Claims for deductions or exemptions not supported by proper documentation. | Provide necessary supporting documents or amend the return to remove the disallowed deduction. |
| Mismatch in Tax Credit (TDS/TCS) | Differences between the reported TDS and the credit available in Form 26AS. | Cross-check Form 26AS and rectify errors in the return or request rectification from the deductor. |
| Non-filing or Late Filing of Return | Failure to file returns on time can lead to interest and penalties. | File the pending return with applicable late fees and penalties. |
| Assessment Adjustments | Post-processing modifications by the Income Tax Department after scrutiny. | Review the adjustments and file a rectification request if errors exist. |
| Interest and Penalties Imposed | Delay in payment of taxes or short payment of advance tax. | Ensure timely payment of advance tax and clear any outstanding liabilities. |
What to Do If You Disagree with the Demand
If you find discrepancies in the demand, you can choose Disagree with Demand (Full or Part) and provide relevant details. Steps include:
Selecting a valid reason for disagreement from the provided list.
Submitting supporting evidence to justify your claim.
If only a part of the demand is disputed, paying the undisputed amount.
For reasons not listed, selecting Others and detailing the explanation.
How to Pay the Outstanding Demand
If the demand is correct, you can pay through the e-Filing portal using:
Online Methods: Net Banking, Debit Card, UPI, or Payment Gateway.
Offline Methods: NEFT/RTGS or Over-the-counter payment at designated banks.
Accessing Past Responses and Notices
To track past responses:
Log in to the e-Filing portal.
Navigate to Pending Actions > Response to Outstanding Demand.
Click View against any previously submitted responses.
Download notices, including Section 245 adjustment notifications, for reference.
Step-by-Step Guide to Submitting a Response
If Demand is Correct and Unpaid:
Select Demand is Correct and confirm.
Choose Not Paid Yet and proceed to make the payment.
Upon payment, a success message with a Transaction ID will be displayed.
If Demand is Correct and Already Paid:
Select Demand is Correct and confirm.
Choose Already Paid and Challan has CIN.
Enter details of the tax payment, attach proof, and submit.
If Disagreeing with Demand:
Select Disagree with Demand (Full or Part) and choose a reason.
Provide supporting evidence for the disagreement.
If partially agreeing, pay the undisputed portion before submission.
Confirm the submission and note the Transaction ID for tracking.
Final Thoughts
Handling an income tax demand notice promptly and correctly ensures compliance and prevents unnecessary liabilities. Whether you agree with the demand or need to dispute it, following the correct process will help resolve issues efficiently. Keep track of all communications and maintain copies of tax payments and responses for future reference.
