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Sec 245 (now Sec 438, Income-tax Act 2025) allows the IT department to adjust your pending refund against an outstanding demand from a previous year, without first getting your consent, but after giving you prior intimation.
Tax notices + litigation · Income Tax Notice
Section 245 (now 438): Refund adjustment without notice (what to do)
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Provisions
IT Act 1961, Sec 245 (now 438) | Time limit: prior intimation required
Analysis
Common scenario: AY 2024-25 refund of ₹50,000 is due. But there's an old 143(1) demand from AY 2021-22 for ₹30,000 that was never addressed. The department issues 245 notice saying they'll adjust ₹30,000 from your refund. You get ₹20,000 instead of ₹50,000. Action: You have 30 days to respond agreeing or objecting to the adjustment. If the old demand was wrong, file 154 rectification simultaneously and respond to 245 objecting to adjustment until rectification is settled.
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