Monday, January 1, 2024

Section 245 Success: A Taxpayer's Handbook for Optimal Refund Management

 In the ever-changing landscape of income tax laws, the Finance Act of 2023 ushered in substantial modifications to Section 245, revolutionizing the dynamics of refund adjustments against outstanding tax liabilities. This comprehensive guide aims to illuminate these amendments, providing taxpayers with an in-depth understanding and strategic insights to effectively navigate Section 245 notices and responses.

Evolution: Integration of Sections 241A and 245

A pivotal change introduced by the Finance Act 2023 was the amalgamation of Sections 241A and 245 into a cohesive provision. This integration was a strategic move to streamline the intricate process of adjusting tax refunds against existing dues. It addressed previous challenges, including convoluted rules and restrictions on withholding refunds at specific assessment stages.

Deciphering Key Amendments by Finance Act 2023

Expanded Criteria for Withholding Refunds: The scope of withholding refunds expanded beyond situations where the refund becomes due after summary assessment (Section 143(1)). It now encompasses refunds arising from diverse circumstances, such as rectification of TDS mismatches and effects of appeals.

Monetary Limit for Withholding Refunds: A significant development was the imposition of a monetary limit for withholding refunds under Section 245(2). Instruction No. 02/2023 set this limit at Rs. 10 lakh or more, providing a clear threshold for the applicability of the provision.

Detailed Procedure for Withholding Refunds: The Central Board of Direct Taxes (CBDT) prescribed a meticulous procedure for withholding refunds under Section 245(2). This procedural framework ensures a structured and equitable approach by tax authorities in the adjustment process.

Understanding the Amended Section 245: A Section-wise Breakdown

Section 245(1): Set Off of Refunds

ApplicabilityRefunds can be set off against any outstanding sum under the Income Tax Act.
Authority to Set OffExclusive authorities, including the Assessing Officer, Commissioner, etc., can authorize the set-off.
ScopeThe entirety or a portion of the refund can be set off against the sum payable by the taxpayer.
Intimation RequirementA written intimation of the proposed set-off must precede any action.

Section 245(2): Withholding Refunds

ApplicabilityPertains to cases where a part of the refund is set off under Section 245(1) or no set-off is made.
Criteria for WithholdingRefund becomes due, proceedings for assessment or reassessment are pending, and the Assessing Officer believes the grant of refund may adversely affect revenue.
Reasons and ApprovalThe Assessing Officer must record reasons in writing, and approval from the Principal Commissioner or Commissioner is imperative.
Duration of WithholdingRefund can be withheld until the completion of assessment or reassessment.

Addressing Common Questions and Concerns: A Tactical Approach

Meaning of "Sum Payable": It refers to the net tax payable after accounting for reductions in advance tax and tax paid under Section 140A.

Prior Intimation Requirement: Yes, a prior written intimation is mandatory for both set-off (Section 245(1)) and withholding refunds (Section 245(2)).

Discretionary Nature of Section 245: The power vested in Section 245 is discretionary, necessitating the Assessing Officer to follow due process and provide an opportunity for the taxpayer to present their case.

Set Off Against Tax Due Under Other Acts: No, the set-off of refunds is confined to Income-tax dues and cannot be extended to liabilities under other statutes.

Adjusting Refund Against Stayed Tax Demand: It is impermissible for revenue authorities to adjust the refund against a tax demand that has been stayed.

Conclusion: Navigating Section 245 with Finesse

The amended Section 245 introduces a nuanced framework for adjusting refunds against outstanding dues. A proactive approach, meticulous adherence to procedural requisites, and a nuanced comprehension of the amended provisions empower taxpayers to navigate Section 245 efficiently. While the integration of Sections 241A and 245 streamlines processes, staying informed remains paramount for a judicious resolution of refund adjustments.

Guiding Steps for Responding to Notices Under Section 245: Simplified

  1. Log in to the e-Filing Portal:

  2. Navigate to e-Proceedings:

    • On the 'Dashboard,' click 'Pending Actions,' and choose 'e-Proceedings.'
  3. Access e-Proceedings:

    • Under 'Pending Actions,' select 'e-Proceedings.'
  4. View the Notice Under Section 245:

    • Look for the notice under the “Self” tab.
  5. View the Notice or Letter PDF:

    • Click to view the notice/letter PDF and understand the details of the outstanding demand.
  6. Submit Your Response:

    • Choose 'Demand is Correct' if you agree or 'Disagree with Demand (Either full or Part)' with reasons if you disagree.
  7. Save the Response:

    • After selecting the response, click 'Save.'
  8. Declaration:

    • Confirm the accuracy of your response by selecting the Declaration checkbox.
  9. Proceed to E-Verify:

    • Click on 'Proceed to E-Verify' to complete the process.

In conclusion, proactive engagement, adherence to procedural requirements, and a clear understanding of the amended provisions will empower taxpayers to navigate Section 245 efficiently, ensuring a balanced and fair resolution of refund adjustments. Stay informed, act judiciously, and secure your rightful position in the intricate terrain of income tax adjustments