Guidelines for Responding to Income Tax Demand Notices

The Income Tax Department issues demand notices under Section 156 to taxpayers who owe taxes, interest, or penalties. An intimation under Section 143(1) from the Centralised Processing Centre (CPC), Bengaluru, is also considered a demand notice if it indicates tax due from the taxpayer. This guide provides a detailed, step-by-step approach for taxpayers to respond effectively to these demand notices.

Understanding a Demand Notice

A demand notice under Section 156 represents official communication from the Income Tax Department instructing a taxpayer to pay outstanding taxes, interest, or penalties. This payment typically must be completed within 30 days of receiving the notice.

Various Forms of Demand Notices Under Section 156

Several types of intimations are considered demand notices under Section 156:

Intimation Under Section 143(1)

This intimation, issued by the CPC, Bengaluru, serves as an acknowledgement that a taxpayer's Income Tax Return (ITR) has been processed. It is sent to the registered email address. If this automatic processing reveals any tax, interest, or penalty due, the intimation functions as a demand notice under Section 143(1).

Intimation Under Section 200A(1)

The CPC, Bengaluru, issues this intimation following the automatic processing of Tax Deducted at Source (TDS) data. If it indicates any tax, interest, or penalty owed concerning TDS, it is deemed a demand notice under Section 156.

Intimation Under Section 206CB(1)

Similar to TDS, this intimation from the CPC, Bengaluru, arises from the automatic processing of Tax Collected at Source (TCS) data. If any tax, interest, or penalty related to TCS is found due, it constitutes a demand notice under Section 156.

Advance Tax Payment Under Section 210(3)

When an Assessing Officer determines that a taxpayer's estimated income warrants a higher advance tax payment than what has been paid, they may issue a demand notice under Section 210(3). This notice is also considered a demand notice under Section 156.

Employee Stock Option Plans (ESOP)

Tax on income from ESOPs granted by eligible start-ups to employees becomes due within 14 days of the earliest of these events:

• The date the employee leaves the organization.
• 48 months from the end of the relevant assessment year in which the employee acquires the shares.
• The date the shares are sold.

The CPC, Bengaluru, sends an intimation regarding the tax liability on ESOP income. While the intimation specifies the amount, payment is deferred until one of the aforementioned events occurs.

Response Timelines for Demand Notices

For demand intimations under Section 143(1), Section 200A(1), and Section 206CB(1), payment is due within 30 days of receipt. However, the timeline for ESOP-related tax is distinct, as previously outlined. Payments pursuant to a Section 210(3) notice must be made within 30 days of its issuance, or by the due date for the relevant advance tax installment if the notice is issued mid-financial year.

Approaches to Addressing a Demand Notice

Upon receiving a demand notice, taxpayers should carefully evaluate the basis for the demand and verify the calculated liability. Based on this assessment, various response options are available:

• Acknowledge that the demand is accurate.
• Indicate that the demand is partially correct.
• Dispute the demand entirely.
• Concur with the adjustment, even if the demand initially appears incorrect.

How to Engage with an Income Tax Department Demand Notice

The relevant Income Tax Officer (ITO) uploads demand notices online. Taxpayers can access these notices and submit their responses by logging into their e-filing account on the official portal, www.incometax.gov.in.

Note: The deadline for sending intimation under Section 143(1) for ITRs filed for AY 2023-24 (FY 2022-23) has been extended to November 25, 2025, from the original date of December 31, 2024.

Step-by-Step Instructions for Responding to a Demand Notice

Step 1: Access your e-filing account at www.incometax.gov.in using your user ID and password.

Step 2: From your Dashboard, navigate to 'Pending Actions' and then 'Response to Outstanding Demand' to view all your pending demands. If you wish to make the payment immediately, click 'Pay Now' on this page, which will direct you to the e-pay tax portal.

Step 3: On the 'Response to Outstanding Amount' page, select 'Submit Response' to begin the process.

Available Options for Responding to the Demand Notice

A. Submitting a Response When the Demand is Correct and Unpaid

Step 1: On the 'Response to Outstanding Amount' page, choose 'Demand is correct.' Once this option is selected, you cannot later dispute the demand.

Step 2: On the same page, select 'Not Paid Yet' and then click 'Pay now.' This action will direct you to the e-pay tax page to complete the payment. A successful payment will be confirmed with a transaction ID.

B. Submitting a Response When the Demand is Correct and Already Paid

Step 1: On the 'Response to Outstanding Amount' page, select 'Demand is correct.'

Step 2: Choose 'Yes, already paid, and Challan has CIN.' Then, click on 'Add Challan Details.'

Step 3: To input the challan information, specify the Type of Payment (minor head), Challan Amount, BSR Code, Serial Number, and Date of Payment. Click 'Attachment' to upload a PDF copy of the challan, then 'Save.'

Note: Individual attachments have a maximum size of 5MB. Multiple documents can be zipped into a single folder, with a maximum size of 50MB.

Step 4: After entering all challan details, click 'Submit' to send your response. A successful submission will display a transaction ID.

C. Submitting a Response When Disagreeing with the Demand (Wholly or Partially)

Step 1: On the 'Response to Outstanding Amount' page, select 'Disagree with the Demand (in full or in part).' Then, click on 'Add Reasons.'

Step 2: Choose the relevant reason(s) for your disagreement from the provided options and click 'Apply.'

Step 3: Click on each disagreement reason you added in Step 2 and provide the necessary details. Once completed, the status will show as 'Completed' next to each reason. Proceed by clicking 'Submit.'

Step 4: If you partially disagree and a remaining amount is due, click 'Pay Now' in the payment summary. This will take you to the e-pay tax page for payment.

Step 5: After completing any payment, you will return to the 'Response to Outstanding Amount' page. Click 'Submit' to finalize your responses.

Step 6: Confirm your submission by clicking 'Confirm.' A transaction ID will confirm successful submission.

Reviewing Submitted Responses (for non-taxpayers)

Step 1: Log into the e-filing portal with a valid user ID and password.

Step 2: From your Dashboard, go to 'Services' and then 'Response to Outstanding Demand.'

Step 3: On the 'Response to Outstanding Demand' page, enter the Permanent Account Number (PAN) of the client (assessee) and initiate the search. You can also filter by Assessment Year.

Step 4: Once the assessee's responses are available, click 'View' next to the notice to review the submitted response.

Step 5: The response details will be displayed. Click 'OK' to return to the previous page.