Outstanding Demand on Income Tax Portal – What to Do? 2026 Guide
Most people discover an outstanding demand on the Income Tax portal in one of two ways — either they receive an email alert from the department, or they log in for something else and notice a red figure under “Outstanding Demand” on their dashboard. Either way, the first reaction is usually some combination of confusion and anxiety: “I filed my ITR — why is there a demand? Have I done something wrong?”
In my experience, roughly half of all outstanding demands I review with clients are either incorrect or resolvable without any payment. TDS that the employer deposited late — not reflected in Form 26AS at the time of processing. Advance tax paid correctly but with a wrong challan entry. A prior year demand that was already paid but not marked as resolved on the portal. A demand raised on AIS data that does not belong to the taxpayer. Each of these resolves with a “Disagree” response and supporting documentation — no payment required.
The other half involve genuine gaps — income not declared, deductions claimed incorrectly, interest accrued on delayed payments. For these, the right action is to pay promptly and correctly, then close the matter on the portal. This guide covers both paths, step by step.
Where to Find the Demand — Portal Navigation
- Login to incometax.gov.in with your PAN and password
- Dashboard → look for “Outstanding Demand” widget — if a demand exists, it shows in red with the amount
- For detailed view: e-File → Income Tax Returns → Response to Outstanding Demand → list of all demands by Assessment Year
- Each demand entry shows: Assessment Year, Section under which raised, Demand Amount, Due Date for response
- Click “View” on any demand to see the full computation — which income was added, which deduction was disallowed, what interest was charged
| Section Shown | What Raised the Demand | Typical Reason |
|---|---|---|
| 143(1) | CPC automated processing | AIS mismatch, TDS shortfall, deduction limit exceeded, 234F late fee |
| 143(3) | Scrutiny assessment by AO | Detailed examination — income additions or deduction disallowances |
| 144 | Best judgement assessment | No response to notices — AO estimated income |
| 147 | Reassessment — prior year | Income alleged to have escaped assessment |
| 154 | Rectification by CPC or AO | Error in original order corrected — demand revised |
| 245 | Refund adjustment notice | Refund due to you being adjusted against an old demand |
Why Demands Are Raised — 8 Common Reasons
| Reason | What Happened | Typical Amount | Resolution Path |
|---|---|---|---|
| TDS credit mismatch | Employer deposited TDS late — not in Form 26AS at processing time | ₹5,000–₹50,000 | Disagree — employer files revised TDS return → Form 26AS updates → demand drops |
| AIS income not declared | FD interest, dividend, freelance income in AIS but not in ITR | ₹10,000–₹1L+ | Agree — file revised ITR → pay tax → close demand |
| Deduction disallowed | 80C exceeded ₹1.5L, 80D claimed wrong amount, HRA formula wrong | ₹5,000–₹30,000 | Agree (if CPC correct) or Disagree with proof (if your claim is right) |
| Advance tax shortfall | 234B/234C interest added — advance tax was less than 90% of liability | ₹2,000–₹20,000 | Usually Agree — interest is statutory once shortfall exists |
| Late filing fee (234F) | ITR filed after July 31 — ₹1,000 or ₹5,000 fee auto-added | ₹1,000 or ₹5,000 | Agree — statutory fee, not disputable |
| 87A rebate disallowed on LTCG/STCG | Rebate claimed on special rate income — not permitted | ₹15,000–₹60,000 | Accept — law is clear; rebate does not apply to LTCG/STCG |
| Prior year demand unpaid | Old demand sitting from a prior AY — interest accumulated | Varies | Agree and pay if genuine; dispute if already paid and not reflected |
| Section 245 — refund adjusted | Your refund for AY 2026-27 has been adjusted against an old demand | Equals old demand | Respond to 245 notice within 30 days — agree or dispute the old demand |
Section 245 — When Your Refund Gets Adjusted
Section 245 is a provision that surprises many taxpayers: the department can adjust your current year’s refund against an outstanding demand from a prior year — without waiting for you to pay the prior demand separately. You will receive an email notification asking for your response within 30 days.
Example: You filed ITR for AY 2026-27 with a refund of ₹28,000. There is an old AY 2024-25 demand of ₹19,000 that was never paid. The department proposes to adjust ₹19,000 from your current refund — you receive only ₹9,000 instead of ₹28,000.
The Section 245 notice gives you 30 days to respond: agree (adjustment happens, matter closes), or disagree (if the old demand was wrongly raised — provide documentation). If you do not respond in 30 days — the adjustment happens automatically.
Three Response Paths — Agree, Disagree, Partially Agree
Path A — Agree: Demand is Correct
If after reviewing the demand computation you agree it is correct — pay it and close it.
- incometax.gov.in → e-Pay Tax → Challan 280 → Self Assessment Tax → AY 2026-27 → Pay
- Save the challan — note BSR code, serial number, and date
- e-File → Response to Outstanding Demand → select the demand → “Agree” → enter challan details → submit
- Download the acknowledgement number — this is your proof of closure
Path B — Disagree: Demand is Wrong
If the demand is based on an error — TDS not reflecting, AIS data incorrect, deduction wrongly disallowed — dispute it.
- Gather your evidence: Form 26AS (showing TDS deposited), Form 16/16A, investment proofs, bank statements
- e-File → Response to Outstanding Demand → select the demand → “Disagree” → choose the reason from the dropdown (e.g. “TDS credit not given,” “Income incorrectly included”)
- Upload supporting documents as PDF (combine into one file, stay within size limit)
- Write a clear explanation in the remarks field — which entry is wrong, why, and what the correct figure is
- Submit → save acknowledgement number
Path C — Partially Agree: Some Right, Some Wrong
If the demand has two components — one correctly raised and one based on an error — you can partially agree. Pay the component you accept, then dispute the component you disagree with separately. The portal allows splitting the response item by item when the demand has multiple line items. This is cleaner than either accepting the full demand or disputing the whole thing when only part is genuinely in question.
Step-by-Step: Complete Response Flow
-
1Download the Demand Notice and Computation
From e-File → Response to Outstanding Demand → click View → download the computation sheet. This shows exactly what the CPC changed in your ITR and why the demand was raised. Read it before doing anything else. -
2Download AIS and Form 26AS — Compare
incometax.gov.in → AIS → download TIS. Also download Form 26AS. Compare the specific income or TDS entry that caused the demand against your filed ITR and your actual financial records. Identify whether the demand is correct or based on an error. -
3If Income Was Missed — File Revised ITR First
If the demand is because you genuinely missed an income — file a revised ITR adding the income, compute tax, pay Self-Assessment Tax via Challan 280, then reference the revised ITR in your demand response. Revised ITR deadline: December 31 of the Assessment Year — for AY 2026-27, this is December 31, 2026. No late fee applies to revised ITR (unlike belated ITR). -
4If TDS Mismatch — Employer Must Act First
Contact your employer’s accounts/payroll team. Ask them to verify their TDS return for the quarter in question. If an error exists — they file a revised TDS return on TRACES. Wait for Form 26AS to update (typically 5–15 working days after employer’s TRACES correction). Then submit your “Disagree” response with the updated Form 26AS as evidence. -
5Submit Response via Portal
e-File → Response to Outstanding Demand → select demand → choose Agree/Disagree/Partial → fill details → attach documents → submit. Download acknowledgement number immediately. -
6Follow Up After 15–20 Days
Check the demand status. If “Disagree” response was accepted — demand should show as resolved. If CPC requires additional information — respond promptly. If demand remains despite a complete response — escalate through the Grievance portal or consult a CA.
What About Appeals — Section 220(6) Stay of Demand
If the demand is from a scrutiny assessment (143(3)) or best judgement assessment (144) — and you believe the AO’s additions are incorrect — you have the right to appeal to the Commissioner of Income Tax (Appeals) under Section 246A. Filing an appeal does not automatically stay the demand. You must separately file a stay application.
Under CBDT’s administrative guidelines for stay during first appeal: deposit 20% of the disputed demand and apply for stay of recovery action on the balance. The Delhi High Court reinforced this 20% deposit practice in Boang Technology (September 2025) — directing immediate de-attachment of accounts on deposit of 20%. Once stay is granted, the demand cannot be recovered through garnishee or attachment while the appeal is pending.
| Situation | Section | Action |
|---|---|---|
| 143(1) automated demand — wrong | Disagree response in e-Proceedings | No appeal needed — portal response is sufficient |
| 143(1) automated demand — correct | Pay and close | No appeal — accept and pay |
| 143(3) scrutiny demand — disputing | 246A appeal + 220(6) stay application | Deposit 20%, appeal on merits |
| 144 best judgement — disputing | 246A appeal + 220(6) stay application | Deposit 20%, appeal on merits |
| Any demand — bank account frozen | 220(6) stay + possible HC writ | CA essential — time-critical |
Real Cases — Four Situations, Four Outcomes
Case 1 — TDS Mismatch — ₹42,000 Demand, Resolved Without Paying
Vikram (Delhi, salary ₹15 lakh) filed his ITR in July. A ₹42,000 outstanding demand appeared in October. The computation showed his TDS credit was ₹42,000 less than what he had claimed — one employer’s TDS had not yet appeared in Form 26AS because the employer filed their Q4 TDS return late.
He contacted HR, who confirmed the filing was late and immediately submitted the correct Q4 TDS return on TRACES. Vikram waited 10 days for Form 26AS to update, then filed a “Disagree” response attaching the updated Form 26AS and a letter from the employer. The demand dropped to zero within 15 days. He also received ₹8,000 additional refund that had been held back pending the demand resolution.
Case 2 — FD Interest Not Declared — Agreed, Revised ITR, ₹18,000 Additional Tax
Anjali (Pune, business owner) received a ₹2.8 lakh demand. The computation showed FD interest of ₹9 lakh from her business savings account had appeared in AIS but was not in her ITR — she had only declared business income.
She confirmed the FD interest was correct. She filed a revised ITR adding ₹9 lakh under “Income from Other Sources,” computed the additional tax (after 80TTB for senior citizens — she was 62), and paid ₹18,000 via Challan 280. She then responded “Agree” to the demand, attached the challan and revised ITR acknowledgement. The demand was adjusted to zero. Lesson taken: she now downloads AIS every April before filing.
Case 3 — Section 245 — Refund Adjusted Against Old Demand
Rohit filed AY 2026-27 ITR with a ₹22,000 refund. He received a Section 245 notice — the department proposed to adjust ₹15,000 from the refund against an AY 2023-24 demand that had been sitting unresolved. He had genuinely forgotten about the old demand.
He checked the AY 2023-24 demand — it was from FD interest he had not declared in that year (₹12,000 tax + ₹3,000 interest = ₹15,000). It was correct. He responded “Agree” to the 245 notice. The ₹15,000 was adjusted and he received the remaining ₹7,000 refund. The AY 2023-24 matter was finally closed. Had he responded within 30 days in 2024 when the demand first appeared — he would have paid ₹12,000 tax only, not ₹15,000 after three years of interest.
Case 4 — 87A Rebate Disallowed on LTCG — Accepted
Meera (Mumbai, investor) had salary income and ₹4.2 lakh LTCG from listed shares. She had claimed the full 87A rebate in New Regime treating all her taxable income (₹11.5L including LTCG) as eligible. A ₹35,000 demand arrived — the 87A rebate portion attributable to the LTCG was disallowed.
Her CA confirmed the demand was correct — Section 87A rebate does not apply to income taxed at special rates (12.5% LTCG). She accepted the demand and paid ₹35,000. No dispute was possible — the law is clear on this point.
🔗 Section 143(1) Notice — Complete Guide 2026
Common Mistakes
Paying the demand without verifying it first:
Reflex payment without reading the computation is a real phenomenon — people see a demand and immediately pay to make it go away. In perhaps 30–40% of cases the demand is based on an error that would have been corrected for free with a “Disagree” response. Always read the computation before paying. A 15-minute review can save thousands of rupees.
Confusing revised ITR and rectification under Section 154:
The previous version of this article suggested filing a “rectification under Section 154” to add challan details. This is incorrect. Section 154 rectification is for the CPC to correct its own arithmetic or apparent errors in an order — you cannot use it to add a payment challan that was missing from your original ITR. The correct approach for a paid demand: respond to the outstanding demand in e-Proceedings with the challan details. If the ITR itself had missing income — file a revised ITR under Section 139(5), not a rectification.
Missing the revised ITR deadline:
Revised ITR under Section 139(5) can be filed until December 31 of the Assessment Year — for AY 2026-27, that is December 31, 2026. No late fee applies to revised ITR. This is different from a belated ITR (Section 139(4) — filed after July 31, carries ₹1,000 or ₹5,000 late fee). If a demand reveals missed income and the December 31 window is still open — file the revised ITR. If December 31 has passed — pay the demand directly without a revised ITR.
Not saving the acknowledgement after submitting a response:
The acknowledgement number from your demand response is your only proof that you responded. If the portal has a technical issue, if the demand reappears, or if you need to follow up — the acknowledgement number is the reference. Download and save it immediately after submission. Do not assume the email notification is sufficient proof.
Not responding to Section 245 within 30 days:
A Section 245 refund adjustment notice that goes unanswered is treated as acceptance — the refund adjustment happens automatically. If the old demand was incorrectly raised and you had evidence to dispute it — that opportunity is lost once the 30-day window closes. Check your portal inbox and registered email regularly during refund season (October–December) for 245 notices.
Frequently Asked Questions
Q1. The demand is ₹200. Is it worth bothering with?
Yes — for two reasons. First, it accrues 1% monthly interest until paid, so ₹200 becomes ₹224 in a year and keeps growing. Second, an outstanding demand against your PAN can affect future refund processing — the department may adjust any future refund against the outstanding amount. Pay small demands promptly. It takes five minutes and clears your compliance record permanently.
Q2. I responded “Disagree” two weeks ago — the demand still shows outstanding. Is that normal?
Yes — demand status does not always update immediately after a “Disagree” response. The CPC needs to process and accept your response. This typically takes 15–30 days for 143(1) demands. Check the status again at the 30-day mark. If it still shows outstanding after 30 days and your response was complete — raise a Grievance at the portal (Help → Grievance → submit with your response acknowledgement number).
Q3. Can a demand be raised for a year when I was not taxable?
Yes — demands can be raised because of processing errors, AIS data attributed to your PAN that belongs to someone else, or a prior employer filing a TDS return with an incorrect PAN that was later corrected and created a discrepancy. In all these cases, the correct response is “Disagree” with the relevant documentation. Demands are not always correct — the department’s automated system makes errors that taxpayers must actively dispute.
Q4. My refund for this year was adjusted against a demand I didn’t know about. Can I get the refund back?
If the 245 notice was sent and you responded “Disagree” within 30 days with documentation proving the old demand was wrong — the adjustment can be reversed. If the 30-day window has passed — you can still file a rectification petition under Section 154 or approach the Grievance cell. However, once the adjustment has been processed, reversal is harder and slower. The lesson: respond to all portal communications within the specified deadline.
Q5. I paid the demand but it still shows outstanding on the portal. What happened?
Two possible situations: you paid via Challan 280 but have not yet submitted a response in the “Response to Outstanding Demand” section with the challan details — the portal does not automatically link payment to demand. Go to e-File → Response to Outstanding Demand → select the demand → “Agree” → enter challan BSR code, serial number, and date → submit. Alternatively, if you already responded with challan details and it still shows — wait 7–10 days for the system to update, then raise a Grievance if it persists.
Conclusion
An outstanding demand on the income tax portal is not a verdict — it is a question. The question is: do you owe this amount, and if so, when will you pay it? For demands based on errors, the answer is “no — here is why” supported by documentation. For demands based on genuine gaps, the answer is “yes — here is the payment.” Both answers are acceptable. The only unacceptable answer is no answer at all.
The process is entirely online, the portal tools are functional, and the timelines — 30 days to respond, December 31 for revised ITR — are generous for taxpayers who engage promptly. Vikram’s TDS mismatch demand resolved in 15 days without a rupee paid. Anjali’s FD interest demand cost ₹18,000 — less than a third of what the demand originally showed. Rohit’s refund adjustment was unavoidable but at least closed a three-year-old matter. Each resolved because someone read the demand, verified it, and responded with documentation. That is the entire job.
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