Refund Stuck or Adjusted u/s 245: Clear Old Demand vs File Form 35 Appeal
s.245 ITA 1961 lets the CPC adjust your refund against an outstanding demand without prior intimation — your options: agree, respond within 30 days if the demand is wrong, rectify u/s 154 for a CPC error, or appeal in Form 35 to the CIT(A) within 30 days.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Under s.245 of the Income-tax Act, 1961, the CPC can adjust a refund you are owed against an outstanding demand — but only after giving you a written intimation of the proposed set-off (consent is not required; prior intimation is). In CPC practice the s.143(1) intimation is often the first communication, so act immediately on receipt. Once the adjustment happens, you have four options: agree and receive the net refund, respond within 30 days if the demand is wrong, file a rectification u/s 154 if it is a CPC error within the 4-year limit, or appeal in Form 35 to the CIT(A) within 30 days if you dispute the underlying demand itself. A refund that arrives "short" is usually not lost — it is sitting in the demand ledger. The question is which demand took it, whether that demand is real, and which of the four routes closes it.
What s.245 actually lets the department do
Section 245 provides that where a refund is due and any sum is payable by the assessee, the refund may be adjusted against that sum — but only after giving the assessee written intimation of the proposed action (s.245(1) uses the words "after giving an intimation in writing to such person of the action proposed to be taken"). Consent is not required; prior intimation is. In CPC practice the s.143(1) intimation itself may be that first communication, so treat any intimation as the start of the response clock — do not assume you get a separate warning. The key point: the adjustment does not extinguish your right to dispute the demand — it changes how you must do it.
Which route in which situation
- Agree. The demand is real and unpaid — a genuine advance-tax shortfall, a prior 143(1) demand you did not pay. The adjustment clears it; you get the balance refund. Nothing further needed.
- Disagree (portal response). The demand is not yours, was already paid, or is a duplicate. Respond within 30 days on the e-filing portal explaining the error and attaching the payment challan or assessment order. This is the fastest fix for "I already paid this."
- Rectification u/s 154. The CPC adjusted against a demand that is the department's own error — a wrong PAN match, a duplicated demand, a rectified assessment not yet reflected. File a rectification with the evidence.
- Appeal u/s 246A (Form 35). You dispute the underlying demand on the merits and the other routes have not resolved it. Appeal within 30 days of receipt of the order being appealed — for the adjusted demand, that is the assessment or intimation that created it.
The old-demand trap: verify before you assume
The most common "stuck refund" story involves an old demand — an AY 2018-19 amount netted against a fresh AY 2024-25 refund. Before you fight or accept:
- Is the demand real? Pull the original intimation/assessment. Duplicates happen when a rectified assessment is not fully reflected.
- Was it already paid? Match the demand against your old challans; an uncredited payment is the single most common false demand.
- Is it yours? Confirm the demand is on your PAN, not a mismatched name or a different assessee.
- Is it stale? After the Finance Act 2001 omitted s.231 (period for commencing recovery), there is no general statutory time-bar on recovery of old demands — they remain recoverable subject only to CBDT administrative write-off thresholds. So do not assume age alone bars it; contest correctness and attribution, not the calendar. (s.154 rectification, however, is barred after 4 years from the end of the FY in which the order was passed.)
If the demand survives all three checks, it is real — pay it and take the net refund. If it fails any one, that is your response or rectification case.
Changed FY 2025-26: No change to s.245 — the adjustment power is unchanged. The practical change is that refund processing is faster and netting against old demands is automated, so an adjusted refund is more common and more visible on the portal. Verify the old demand before you assume the net figure is correct.
Worked example: Ravi's ₹30,000 adjustment
Persona: Ravi, salaried, gets a refund of ₹45,000 for AY 2024-25 in FY 2025-26 — but receives only ₹15,000. The portal shows ₹30,000 was adjusted under s.245 against an AY 2018-19 demand.
Step 1 — Verify the old demand. Ravi opens the AY 2018-19 assessment record. He finds the demand was raised by an intimation, but he paid ₹30,000 in March 2020 via challan — the payment was never credited to the demand ledger (a common reconciliation failure).
Step 2 — Choose the route. The demand is not real (already paid). This is a response case, not an appeal. Ravi uses the portal's response facility within 30 days, attaching:
- the March 2020 challan,
- the bank statement showing the debit, and
- the AY 2018-19 intimation.
Step 3 — Outcome. The department recredits the payment, the ₹30,000 adjustment is reversed, and Ravi receives the balance ₹30,000 (plus statutory interest on the delayed refund, if applicable). on interest eligibility for the period of delay.
If Ravi had instead appealed in Form 35 — the wrong route for a "paid but not credited" case — he would have spent months on an appeal over a demand he did not actually owe. Route selection is everything.
Frequently asked questions
1. Can the department adjust my refund without asking me?
Yes — s.245 allows the CPC to adjust a refund against an outstanding demand without your consent, but only after giving a written intimation of the proposed set-off. In CPC practice the s.143(1) intimation is often that first communication, so treat it as the trigger to respond.2. What are my options after a s.245 adjustment?
Agree, respond within 30 days, rectify u/s 154, or appeal in Form 35 — depending on whether the demand is correct, wrongly recorded, a system error, or disputed on the merits.3. How long do I have to dispute the adjustment?
30 days for a portal response disputing the demand; 30 days for a Form 35 appeal from the relevant order. Act fast — the money is already netted.4. An old demand was adjusted against my new refund — what do I check?
Whether it is real, already paid, and yours. Pull the old intimation, match it against your challans, and confirm the PAN. Uncredited payments and duplicates are the common causes.5. Is an old demand automatically time-barred?
Not as a blanket rule under the current recovery framework — [VERIFY] the recoverability of a specific old demand. Fight on correctness and attribution first.6. What is Form 35 for?
A first appeal to the CIT(A) under s.246A, filed within 30 days of the order being appealed — the route when you dispute the underlying demand itself.7. Will I get interest on a refund that was wrongly adjusted?
Possibly — statutory interest on delayed refunds may apply once the wrongful adjustment is reversed. on eligibility for your assessment year.---
Last verified: 2026-08-08 (FY 2025-26 / AY 2026-27)
Sources: s.245 (adjustment of refund against demand), s.246A (appeal to CIT(A), Form 35), s.154 (rectification), s.244A (interest on refunds), Income-tax Act, 1961. Recovery-limitation and interest-eligibility points flagged [VERIFY]. For a personalised read on a notice, use the Notice Explainer.
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