Waiting for your ITR refund and got a notice instead? Here is how to deal with income tax refund adjustment notice

Well, receiving an income tax refund adjustment notice can feel unsettling, especially when you are expecting a refund and instead receive a message about a past tax demand.

However, such notices are not uncommon and necessarily do not always mean that a penalty or error involved.

In most cases, they simply indicate that the Income Tax Department plans to adjust your current year’s refund against an outstanding tax liability from a previous year.

Understanding how to respond appropriately, and within the deadline, is key to resolving the matter without complications.

So, what should taxpayers do when they get an income tax refund adjustment notice?

Upon getting a refund adjustment notice relating to income tax, CA Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara Pvt. Ltd. said that your first action should be to go through the notice very carefully so as to be able to identify the reason for the adjustment.

Usually, these sorts of notices indicate that the refund of the current year is going to be adjusted against a tax demand that is outstanding from a previous year.

It is very important to issue a reply within the allocated time. "Taxpayers should reply within 21 to 30 days, whereby they either give their consent to the adjustment or, by providing valid reasons and supporting documents, they dispute it," said CA Siddharth Maurya.

In case you disagree, furnish the department with the detailed reasons explaining and refuting the demand. "Non-recognition of the notice may lead to the situation whereby the refund will be automatically adjusted without further steps being taken," added CA Maurya.

What is the notice of income tax refund adjustment?

Section 245 of the Income Tax Act pertains to the mechanism of adjusting tax demands against a taxpayer's pending refunds.

This notice is issued by the tax authorities when there is an outstanding tax liability and an eligible refund due to the taxpayer.