The Income Tax Return (ITR) filing for the financial year 2024-25 will kick in soon once the tax department makes available online and offline forms and utilities on the e-filing portal of the Income Tax Department. Taxpayers, including salaried individuals, keenly await the tax department to upload the necessary utilities to facilitate ITR filing so that their refund amount, if any, is released at the earliest.

But for this assessment year, if you receive a smaller income tax refund or do not get any refund at all, you should check the status of your previous tax assessments and return filings. Many taxpayers have received e-mails from the tax department regarding pending assessments of returns filed previously. Taxpayers have been informed about possible adjustments to their old dues with the current refund.

According to the information in the emails received by some taxpayers, if an individual’s income tax return is pending for assessment or re-assessment, the refund will not be issued to them until the investigation is completed by the concerned authority.

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On March 11, 2025, the deputy director of Income Tax sent emails to taxpayers saying that since there are pending “assessment/re-assessment proceedings in your case, the refund release/withhold will be based on the response provided by Jurisdictional Assessing Officer (JAO) in accordance with the provisions of section 245(2) of the Income Tax Act, 1961.”

The Income Tax Department says that section 245(2) of the Income Tax Act empowers tax officials to take action in such cases and adjust the outstanding amount of any year with the refund of the current year.

Purpose is to ensure ‘pending tax liabilities are recovered’, say tax experts

According to CA (Dr.) Suresh Surana, these notices are intimations issued by the tax department under Section 245(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’). “The department proposes to adjust a taxpayer’s current year tax refund against any outstanding tax demand of earlier years. The primary intent of this provision is to ensure that pending tax liabilities are recovered before issuing any refunds, thereby preventing revenue leakage.”

These notices typically arise in cases where a taxpayer’s Income Tax Return (ITR) has been selected for assessment or reassessment, and the refund claimed is under review, Surana noted, adding that until the pending verification or proceedings are completed, the department may withhold the refund to verify if any outstanding demand is due for adjustment.

The taxpayer is generally provided an opportunity to respond or raise objections within a stipulated time before the adjustment is made, ensuring compliance with the principles of natural justice.

“This mechanism is used not only for administrative convenience but also to streamline the reconciliation of taxpayer accounts. Taxpayers need to verify their outstanding tax demands (if any) and respond to such notices within the time prescribed to avoid delays in refund processing,” according to Dr. Surana.

Expressing similar views, Shefali Mundra, Tax expert, Clear Tax, says the Income Tax Department’s decision to withhold refunds under Section 245 highlights its increased focus on clearing past tax demands before processing current-year refunds.

“Under this section, the department has the authority to adjust any pending refund against outstanding dues from previous years. With recent email alerts being sent to taxpayers, it’s clear that refunds will only be issued once pending assessments or reassessments are resolved. Taxpayers are advised to regularly review their tax portal for existing demands, respond promptly to notices, and address any discrepancies to avoid delays,” she added.

Also read: Income Tax Returns AY2025-26: 5 key things for first-time taxpayers to keep in mind while filing ITR

What can taxpayers do in case of some discrepancies in the notice?

If a taxpayer receives a notice under Section 245(2) proposing to adjust a refund against a past tax demand, and there is an error or discrepancy in the notice (such as incorrect demand figures, already settled demands, etc.), the taxpayer should take prompt action, suggests CA Surana. Here’s what he recommends to taxpayers:

The first step is to log in to the e-filing portal of the Income Tax Department and navigate to the “Pending Actions” → “Response to Outstanding Demand” section to verify the details of the demand.

If the demand is incorrect, already paid, or under appeal, the taxpayer should submit an online response through the portal, providing the appropriate justification and uploading supporting documents such as challans, appeal orders, or rectification acknowledgments.

It is important to respond within the prescribed time, typically 21 days, as failure to respond may result in the automatic adjustment of the refund against the stated demand, says Surana. “If the issue is not resolved online, the taxpayer may also consider filing a rectification request under Section 154 or writing to the jurisdictional Assessing Officer with a formal representation.”

Also read: Income Tax: These 5 cash transactions can get you a notice from the tax department

Dhruv Chopra, Managing Partner, Dewan PN Chopra & Co., says, “Receiving a notice from the Income Tax Department can understandably be unsettling, often raising concerns about compliance, penalties, or scrutiny. However, it’s important to remember that not all notices signal serious issues. Many are routine communications or requests for clarification due to minor discrepancies or missing information.

“A large number of these notices are system-generated, based on data-matching algorithms. They typically highlight inconsistencies, errors, or a need for additional documentation. Still, every notice should be taken seriously and responded to in a timely manner — ignoring even minor issues can lead to unnecessary complications or penalties.”

Common triggers for such notices include incorrect information in the income tax return, discrepancies between reported and actual income, or mismatches in TDS claims, Chopra added.

“One of the most frequently issued notices during assessments or reassessments is under section 133(6). This section empowers the Income Tax Department to request relevant documents or details from any person, not just the assessee, if the information is considered relevant to any ongoing proceeding. These proceedings may relate to the taxpayer or any associated party involved in financial transactions,” Chopra noted.