Income Tax Demand Notice or Refund Adjusted? Step-by-Step Action Guide

Who this guide is for

This guide is for individual taxpayers, salaried employees, pensioners, freelancers, and small proprietors in India who have run into one of these income tax situations on the e-filing portal:

• You received an intimation after filing your return, and it shows tax payable instead of the refund or nil result you expected.
• You see an outstanding demand against your PAN, sometimes for an assessment year going back several years.
• Your income tax refund was adjusted (set off) against an old demand, so you received less than expected, or nothing at all.
• You believe the demand is the result of a processing error, such as TDS not matched, a paid challan ignored, or an arithmetic slip.
• You already responded on the portal but nothing happened, and you need to escalate to the Centralised Processing Centre (CPC).

This guide focuses on demands and refund adjustments thrown up during routine processing of your return. If you instead received a defective-return notice asking you to fix your filing, see our companion guide on responding to a defective income tax return notice. Where a notice involves complex assessment, scrutiny, large amounts, or possible penalty, treat this guide as a starting point and engage a qualified chartered accountant or tax practitioner.

What you can do this weekend

Friday evening

Log in to the income tax e-filing portal with your PAN and password. Open the Pending Actions menu and look for Response to Outstanding Demand. Note down, for each entry, the assessment year, the amount, the section referenced, and the document identification number (DIN) of the notice. Download the intimation or order as a PDF.

Also check the email registered with your PAN. The department usually emails the intimation or demand as a password-protected PDF (the password format is shown in the covering email). Save every message and attachment in one folder for the year concerned.

Read the closing computation table at the end of the intimation. It compares what you reported with what the department computed, line by line. The last row tells you whether the result is tax payable, refund, or nil. The most common cause of a surprise demand is a mismatch between the tax credit you claimed and what appears in the department's records.

Saturday

Pull your tax-credit statements. Download your Form 26AS and your Annual Information Statement (AIS) from the portal. Compare every TDS entry, advance tax, and self-assessment tax challan against what you claimed in your return. A demand often appears because a challan was entered with the wrong assessment year, the wrong PAN, or a wrong minor head, so the system did not match it to your return.

If you find tax you actually paid that was not matched, gather the proof: the challan counterfoil with its CIN, the bank statement showing the debit, and the relevant Form 16 or 16A. These documents are what you will attach when you respond.

If the refund was adjusted against an old demand, find the entry for that old year too. Check whether you ever disagreed with it, whether it was already paid, or whether it relates to a return you never filed. An old demand can survive in the system for years if nobody ever responded to it.

If your records and the portal genuinely match and you do owe the tax, decide how you will pay. You can pay the demand through the e-Pay Tax facility on the portal and then mark the demand as paid in your response.

Sunday

Decide your response for each demand: agree and pay, disagree fully, or disagree in part. Draft a short, factual note for each disagreement, listing the exact reason and the documents that prove it. Keep it tied to the figures, not to general complaints.

If the problem is an apparent processing mistake (unmatched TDS, ignored challan, arithmetic error), plan to file a rectification request in addition to, or instead of, the demand response, depending on the option the portal offers for that order. If the issue is a wrong figure you yourself reported, a revised return may be the right tool instead.

If the stakes are high or the computation is hard to follow, book a short paid consultation with a chartered accountant before Monday. A correct first response saves months of back-and-forth. Once you are clear, you are ready to submit on the portal.

Documents and evidence checklist

Step-by-step action plan

Step 1 — Read the intimation and identify the demand

Open the intimation or order and locate four things: the assessment year, the amount of tax payable, the section under which it was issued, and the document identification number (DIN). An intimation is a computer-generated comparison of your return and the department's processing; where that processing shows tax payable, the figure becomes an outstanding demand. Do not confuse the two: a demand is the bottom-line amount the department says you owe, while the intimation is the document that explains how it was computed.

Step 2 — Find out why the demand arose

Compare the intimation's computation column against your filed return, line by line. Then reconcile your tax credits against Form 26AS and your AIS. The usual reasons a demand appears are:

• TDS not matched: a deductor reported your TDS under a wrong PAN or quarter, so the system did not credit it to you.
• Challan not matched: a self-assessment or advance tax challan was paid with the wrong assessment year or minor head and never linked to your return.
• Arithmetic or claim mismatch: a deduction or exemption you claimed was not accepted in processing, or there is a calculation difference.
• Genuine shortfall: you really did underpay tax for that year.

Knowing the precise reason decides whether you respond, rectify, revise, or simply pay.

Step 3 — Decide your response: agree, disagree, or pay

If you genuinely owe the tax, the cleanest course is to pay it through the e-Pay Tax facility and then record the payment in your response. If the demand is wrong, you will disagree. If part is right and part is wrong, you will disagree in part and pay the correct portion. Make this decision per assessment year, because each demand stands on its own facts.

Step 4 — Submit your Response to Outstanding Demand on the portal

Log in to the e-filing portal and go to Pending Actions > Response to Outstanding Demand. Select the demand and choose the response that fits: that the demand is correct, that it is partially correct, or that you disagree. The portal will ask you to pick a reason (for example, demand already paid, TDS or challan to be matched, or rectification or appeal filed) and to enter challan details or attach documents. Fill these carefully and submit. Download the acknowledgement immediately; it is your proof that you responded within time.

Step 5 — File a rectification if there is an apparent mistake

Where the demand is the result of an obvious, apparent-from-record error in processing, file a rectification request against the relevant order on the portal. Choose the correct rectification category (such as tax-credit mismatch or reprocessing the return) and attach proof of the unmatched TDS or challan. Rectification is meant for clear, record-based errors, not for fresh claims or disputed interpretation. If the error is something you reported wrongly yourself and the window is open, a revised return may be the right tool instead. Check the current rectification process on the official portal, since the screens change from time to time.

Step 6 — Handle a refund that was adjusted (set off)

The law allows the department to set off a refund due to you against an outstanding demand from an earlier year. You are normally entitled to a prior intimation of the proposed adjustment, giving you a chance to respond before the set-off happens. Check whether you received that intimation. If a refund was adjusted against a demand you had already disputed, already paid, or never owed, respond on the portal that you disagree with the underlying demand and, separately, raise a grievance asking for the set-off to be reviewed and the refund released. Keep the figures and dates precise.

Step 7 — Raise a CPC grievance if nothing moves

If you submitted a response or rectification and there is no movement after a reasonable time, raise a grievance with the Centralised Processing Centre using the grievance facility on the e-filing portal (commonly shown as e-Nivaran or Grievances). Quote your PAN, the assessment year, the DIN of the notice, and the date and acknowledgement number of your earlier response. Note the grievance ticket number. For background on combining government grievance routes, see our guide on using CPGRAMS and RTI together.

Step 8 — Escalate or get professional help

If the CPC grievance is not resolved, you can escalate through CPGRAMS to the Department of Revenue. Where a demand is large, arises from a regular assessment, or carries penalty or appeal implications, the proper route may be an appeal to the appellate authority within the time allowed, not just a grievance. That is a decision to take with a chartered accountant or tax advocate. Do not let an appeal deadline pass while you wait on a grievance reply.

Escalation ladder

Copy-paste grievance template

Replace the text in square brackets with your own details before sending.

When RTI can help

The Right to Information Act, 2005 applies to public authorities, and the Income Tax Department is one. RTI cannot change your tax position, but it can get you records that make your response or appeal stronger. It is useful in these situations:

• Getting a copy of an order or calculation sheet: if you cannot download the intimation, the computation, or the order creating the demand, file an RTI application with the Central Public Information Officer (CPIO) of the jurisdictional Income Tax office asking for a certified copy of the order and the computation for the relevant assessment year and PAN.
• Status of a pending rectification or response: if your portal response or rectification has been ignored for a long time, RTI can be used to ask for the current status and any internal noting on the application, quoting its acknowledgement number.
• Whether a prior intimation of refund adjustment was issued: if your refund was set off and you never saw a prior intimation, you can ask the CPIO whether and when such an intimation was issued and dispatched.

To file an RTI, see our step-by-step guide on filing an RTI online in India. If the CPIO does not reply in time, our guide on filing a first appeal under RTI Section 19 shows the next step. For deeper strategy on using RTI in regulatory and tax matters, see The RTI Playbook.

When RTI will not help

RTI has clear limits in a demand or refund dispute:

• RTI cannot cancel a demand or release a refund: it gives you information, not a decision. Only the rectification, portal response, grievance, or appeal routes can change the demand itself.
• RTI is not a substitute for responding on time: filing an RTI does not stop interest accruing or extend the time to respond to a notice or file an appeal. Respond first; use RTI alongside.
• Third-party and confidential information: the department may decline to share another taxpayer's records or information exempt under the Act. Frame requests around your own PAN and your own records.

Common mistakes to avoid

• Ignoring the notice: a demand does not lapse on its own. Interest accrues, future refunds get adjusted, and recovery can follow. Respond or pay within the time given.
• Confusing the intimation with the demand: the intimation explains the computation; the demand is the bottom-line amount. Read the closing computation table to see which result applies before you react.
• Paying a wrong demand just to make it disappear: if the demand is genuinely incorrect, disagree on the portal with proof. Paying a wrong demand is hard to reverse.
• Choosing the wrong correction route: rectification is for apparent processing errors, a revised return is for mistakes you made in your own return, and an appeal is for contested merits. Picking the wrong route wastes time.
• Missing a refund-adjustment intimation: if your refund shrank, check your email and portal for a prior intimation of the proposed set-off. If none was given, say so in your grievance.
• Not keeping acknowledgements: every portal response, rectification, payment, and grievance generates a reference number. Save them all; they prove you acted in time.
• Letting an appeal deadline pass while waiting on a grievance: a grievance reply can take a while. If the matter needs an appeal, file it within the period in the order, regardless of grievance status.
• Handling a big or scrutiny demand alone: for large amounts, regular assessments, or penalty exposure, get a chartered accountant or tax advocate involved early.

For related tax-record problems, our companion guides cover defective return notices, PAN misuse appearing in your records, and high-value transactions in AIS that are not yours.