Last reviewed: 13 November 2026. A demand notice under section 156 asks you to pay tax determined after processing or assessment. It often arrives together with an intimation under section 245 saying your refund for another year will be adjusted against it. Many demands are wrong: credit for TDS or advance tax was missed, a challan was not mapped, or the demand was already paid. Each has a specific fix.
Part of our income-tax notice series. For every notice type, the time limits and the appeal route, start with the complete guide to income-tax notices.
Why demands are often incorrect
- TDS credit not given because the deductor reported the wrong PAN or year, or filed late. See TDS credit mismatch and section 205.
- Advance tax or self-assessment tax challan not linked to the right assessment year.
- Relief under section 89 or foreign tax credit not given because Form 10E or Form 67 was not filed.
- Interest under sections 234A, 234B and 234C computed on a wrong base.
- Demand already paid or reduced in appeal, but the order giving effect was not passed.
Responding on the portal
| Situation | Response on "Response to Outstanding Demand" |
|---|---|
| Demand is correct | Agree and pay |
| Demand already paid | Disagree: give challan details |
| Demand reduced or deleted in appeal or rectification | Disagree: give the order details |
| Appeal filed | Disagree: give appeal details; apply for stay separately |
| Partly correct | Agree to part, disagree to part with reasons |
A section 245 intimation gives 30 days to respond before the refund is adjusted. Respond even if you agree, and say so where an appeal or stay is pending.
Rectification under section 154
Where the error is apparent from the record (TDS credit missing although in Form 26AS, a calculation error, a challan not considered), file a rectification request online. The request must be made within four years from the end of the financial year in which the order was passed, and the officer is required to dispose of it within six months. Rectification is not the route for debatable issues; those go to appeal.
Stay of demand during appeal
Filing an appeal does not by itself stop recovery. An application under section 220(6) to the assessing officer is needed. Under CBDT's Office Memorandum of 31 July 2017, the standard practice has been stay on payment of 20% of the disputed demand. The Budget 2026 announced a reduction to 10% of the core tax demand; check whether the revised instruction has been issued when you apply. High Courts have repeatedly held that the 20% figure is a guideline, not a fixed condition, and that the officer must consider the merits and hardship in each case.
Illustrative example
A salaried taxpayer's AY 2025-26 intimation shows a demand of ₹64,300 because TDS of ₹61,800 deducted by a second employer was not credited: the employer had quoted the wrong PAN in its TDS return. The employer files a correction statement; once Form 26AS reflects the credit, a section 154 rectification is filed and the demand, including the related interest, falls away. A section 245 intimation proposing to adjust this year's refund is answered as "demand incorrect, rectification filed", with the rectification reference.
If a refund is held up for other reasons, see income-tax refund not received.
Frequently asked questions
What is a section 156 demand notice?
It is the notice specifying tax, interest or penalty payable after processing of a return or an assessment. It must generally be paid within 30 days of service unless stayed or reduced.
What is a section 245 intimation?
It is an intimation that the department proposes to adjust your refund against an outstanding demand of another year. You have 30 days to respond, agreeing or disagreeing with reasons.
How do I correct a wrong income-tax demand?
If the error is apparent from the record, such as missing TDS credit that appears in Form 26AS, file a rectification under section 154. If the demand arises from a contested addition, file an appeal and apply for stay.
What is the time limit for a rectification under section 154?
Four years from the end of the financial year in which the order sought to be rectified was passed. The officer must dispose of an application within six months.
Do I have to pay the disputed demand while my appeal is pending?
Not necessarily. Apply for stay under section 220(6). The standard practice has been stay on payment of 20% of the disputed demand; Budget 2026 announced a reduction to 10% of core tax, subject to the implementing instruction, and the officer must consider the facts of each case.
We read the notice against your return, AIS and books, tell you what it is really asking, prepare the reply with supporting documents, file it on the portal and follow the matter through to the order and, where needed, appeal. The outcome rests with the tax authority; our work is to put a complete, documented response before it.
Refund and demand rectificationAppeals before CIT(A) and ITATBook a consultation
This article is for general information and does not constitute advice on any specific case. Sources: the Income-tax Act, 1961 (which continues to govern assessment years up to 2026-27 under section 536 of the Income-tax Act, 2025), the Income-tax Act, 2025, the Finance Act, 2026 and the CBDT instructions and circulars cited in the text. Time limits run from the date of service of each notice or order; confirm the current position and the exact dates in your notice before acting. Firm details: Somesh Chandak & Associates, Chartered Accountants, Unit 119, 1st Floor, Centura Square IT Park, SG Barve Road, Wagle Estate, Thane West 400604. FRN 158694W.