Thursday, November 16, 2023

CBDT prescribes limit of Rs. 10 lakh or more to withhold refund under Sec. 245(2)

 In a recent development, the Central Board of Direct Taxes (CBDT) has brought about significant changes in the rules governing the withholding of income tax refunds under Section 245(2) of the Income-tax Act, 1961. The most notable change is the introduction of a monetary limit, setting the threshold for applying these provisions at Rs. 10 lakhs or more.

Understanding Section 245(2)

Section 245(2) grants the Assessing Officer (AO) the authority to withhold a taxpayer's refund in cases where there is an outstanding tax demand or pending assessment proceedings. This provision is designed to prevent any adverse impact on government revenue that may result from the release of refunds.

The New Monetary Limit

Under the recent notification by the CBDT, the provisions of Section 245(2) will now come into play only when the refund amount is Rs. 10 lakhs or more. This means that if your refund falls below this threshold, these rules won't be applicable to your case.

Detailed Process and Decision-making

In cases where Section 245(2) is relevant, the Faceless Assessing Officer (FAO) will communicate with the Jurisdictional Assessing Officer (JAO) regarding the potential tax demand. The JAO, in turn, will carefully assess the situation, taking into consideration various factors such as the taxpayer's financial condition, past tax demands, and any ongoing appeals. Importantly, the JAO must seek approval from the jurisdictional Principal Commissioner of Income-tax.

Recorded Reasons and Timelines

A crucial aspect of this process is the recording of detailed and well-thought-out reasons for withholding or releasing the refund. The reasons provided by the JAO should reflect a thorough analysis of the case, ensuring that the decision is not arbitrary.

In terms of timelines, the recent changes have revised the time limits for the process. The Faceless Assessment Unit is now allocated 20 days, while the Jurisdictional Assessing Officer has 30 days to complete the entire procedure.

Ensuring Transparency and Compliance

The CBDT's move aims to bring more transparency and efficiency into the withholding of tax refunds process. By setting a clear monetary limit, the intention is to streamline the application of Section 245(2) and ensure that it is exercised judiciously in cases where the potential revenue impact is substantial.

What Taxpayers Need to Do

If you're expecting a tax refund, it's essential to be aware of these recent changes. If your refund falls below Rs. 10 lakhs, you can expect business as usual. However, if your refund exceeds this limit, the new rules will come into play, and the decision-making process will be subject to the outlined procedures.


Understanding the changes in withholding tax refunds is crucial for both taxpayers and tax professionals. By staying informed about these modifications, individuals can navigate the tax process more effectively and ensure compliance with the latest regulations. As always, for more detailed steps and information, taxpayers can refer to the workflow chart provided by DGIT(Systems).