What a Section 245 intimation does
Section 245 is the department's power to keep a refund you are owed and use it to settle tax you owe from another year. It cannot do this silently. The law requires it to first send you an intimation that says, in effect, "you are due this refund, you have this old demand outstanding, and we propose to set one against the other, tell us if you disagree."
That intimation is the moment to act. It is not a demand notice and not a penalty; it is a proposal to adjust, and it carries a response window. If you agree, or simply don't reply, the set-off goes through and your refund is reduced or wiped out by the old demand. If you disagree and say why, the adjustment is held while the demand itself is looked at.
The trap is that the old demand is often not real. It may be a demand that was already paid but never closed on the system, one raised on a 143(1) intimation years ago that you never contested, or a duplicate. The Section 245 intimation is frequently the first time an NRI even sees it, because the original demand sat quietly on the portal.
Respond in the window: and on the right footing
The intimation states how long you have, and that period is short, often described around 30 days, sometimes 21. Read the exact figure and date off your own intimation and treat it as the deadline, because once it passes the set-off ordinarily proceeds.
Responding well means two moves at once. On the portal you record that you disagree with the adjustment, in full or in part. Separately, you address the old demand itself, because objecting to the set-off without fixing the demand only delays things.
| If the old demand is… | The route to clear it |
|---|---|
| Already paid but shown open | Submit the challan / proof; get it marked paid |
| Wrong on the record | Rectification under Section 154 against that year |
| Under genuine dispute | Seek a stay on recovery (Section 220(6)) |
The right footing is whichever of these fits the demand. A demand you already paid needs the challan put on record and the entry closed; a demand raised in error needs a rectification against that year; a demand you are contesting on the merits needs a stay so it can't be recovered while the dispute runs. Picking the wrong one leaves the refund stuck even after you have objected.
Getting a stale or wrong demand actually removed
Disagreeing on the portal pauses the set-off; it does not, by itself, clear the demand. The refund is only truly freed when the underlying demand is corrected, closed or stayed at source.
For a demand that was paid but never closed, the fix is documentary. The challan number, the date, the amount, submitted so the assessing officer or the processing centre marks the demand as paid and the entry drops off your outstanding-demand list. For a demand that is wrong on the record. A TDS credit that should have been given, an arithmetical error. A rectification under Section 154 against that original year removes it at root. For a demand you are genuinely contesting, an application to be treated as not in default (Section 220(6)) can hold recovery, if the assessing officer grants it, while the appeal or rectification is decided.
The common thread is that the demand has to be dealt with where it lives. The year it relates to, not just at the refund you want released. Once it is closed or stayed there, the Section 245 set-off has nothing left to attach to and the refund is released. This is the same outstanding-demand mechanism that catches an unanswered 143(1) demand, which is why the two situations so often run together.
A worked example: Meera's refund eaten by a 2019 demand
Meera, an NRI in the UK, filed her return and was due a refund of about ₹90,000. Before it arrived, a Section 245 intimation said the refund would be adjusted against an outstanding demand of roughly ₹85,000 from assessment year 2019-20. A year she barely remembered and a demand she was sure she didn't owe.
Checking the outstanding-demand screen showed the demand traced back to a 143(1) intimation from that year, where a chunk of TDS on her NRO interest had been disallowed because it hadn't reconciled with 26AS at the time. She had never responded, so the demand had sat open for years and was now being used to swallow a fresh refund.
The response had two strands. On the portal, she disagreed with the Section 245 adjustment within the stated window. In parallel, a rectification under Section 154 went in against 2019-20, pointing to the TDS that had since reconciled in 26AS. Once that rectification was accepted, the 2019-20 demand fell away, leaving nothing for the set-off to attach to, and the ₹90,000 refund was released in full. The numbers are illustrative; the point is that the refund came back only once the old demand was killed at its source.