Income tax refund can be adjusted against outstanding tax demand; know your options for AY 2026-27

If the taxpayer fails to pay the outstanding tax demand, the Income Tax Department can adjust the tax demand against any refund due to the assessee.

"The CBDT has empowered the CPC to adjust tax demand against the tax refunds due to the assessee. Thus, the refund claimed by Mr. A can be adjusted with the demand standing against him for the Assessment year 2025-26," says a report by Taxmann Advisory and Research Team.

If you have also received an outstanding tax demand notice for AY 2026-27, or if you receive one in the coming weeks, this article explains the options taxpayers have to deal with it, according to the report.

What are the options for taxpayers?

The e-filing portal has a facility where taxpayers can submit online responses to such demands. It can be done in following steps:

Based on the scenario, you can opt for one of the following:

(a) If the demand is correct, but you have not paid the tax

(b) If the demand is correct and you have already paid the tax

(c) If you disagree with the demand (in full or part)

If the demand is correct, you can submit that the demand is correct. On such selection, you will be taken to the e-Pay tax page, where you can make the tax payment. A success message and a Transaction ID are displayed on successful payments.

If the demand is correct and you have already paid the tax, click ‘Add Challan Details’ and add the details of challan, Type of Payment (minor head), Challan Amount, BSR Code, Serial Number, and Date of Payment. Click ‘Attachment’ to upload a copy of the challan (PDF). Click Save. On successful validation, a success message is displayed along with a Transaction ID.

If you disagree with the demand (in full or part), click ‘Add Reasons’. Select the appropriate reasons for disagreement and enter the relevant details. Click "Confirm" to confirm your submission. A success message and a Transaction ID are displayed on successful submission.

You should also keep a note of the Transaction ID for future reference.