In the Indian taxation system, timely compliance and prompt response to tax notices are essential to avoid penalties, interest charges, and legal complications. One such critical communication is the Demand Notice under Section 156 of the Income Tax Act, 1961.
This notice is issued when the Assessing Officer (A.O.) determines that a taxpayer is liable to pay tax, interest, penalty, fine, or any other amount following an assessment, reassessment, or other proceedings.
Understanding the significance of a Demand Notice under Section 156 and responding appropriately can help taxpayers avoid unnecessary financial burdens and ensure smooth compliance with tax regulations.
What is Section 156?
Section 156 of the Income Tax Act empowers the Assessing Officer to issue a notice of demand to a taxpayer, requiring the payment of any tax, interest, penalty, or other sums owed. The notice clearly mentions the amount due and specifies the due date, typically within 30 days from the date of service. The main purpose of this provision is to inform taxpayers of their liabilities and ensure prompt settlement to avoid further penalties or legal issues.
Notice for Sum Payable
Notices issued under Sections 143(1), 200A(1), and 206CB(1) are also treated as demand notices under Section 156. Therefore, if a taxpayer receives a notice under any of these sections indicating an amount payable, it effectively acts as a Section 156 demand notice, and the same response procedures apply.
How to Respond to an Outstanding Demand Notice
Responding to a demand notice requires accessing the Income Tax e-Filing Portal and following a few simple steps:
Login to the Income Tax e-Filing Portal using your credentials (user ID and password).
Navigate to: Pending Actions → Response to Outstanding Tax Demand.
Submit Your Response: Click on ‘Submit Response’ and either accept or contest the demand based on your records.
Available Options for Responding to a Demand Notice
When responding to an outstanding demand notice, a taxpayer has four options:
Demand is Correct: You agree with the full demand amount.
Demand is Partially Correct: You agree with a portion of the demand.
Disagree with Demand: You contest the entire demand amount.
Demand is Not Correct but Agree to Adjustment: You recognize an error but consent to an adjustment without contesting further.
Scenario 1: Agreeing with the Demand (Demand is Correct)
If you fully accept the demand:
Select ‘Demand is Correct’.
Proceed with Payment:
If not yet paid, select ‘Not paid yet’ and click ‘Pay Now’ to complete the payment through the e-Pay Tax page.
If already paid, select ‘Yes, Already Paid’ and provide:
Challan Identification Number (CIN)
BSR Code
Serial Number
Date of Payment
Upload a copy of the payment challan
Submit: After filling in the required details, submit your response. A success message with a Transaction ID will be generated for future reference.
Scenario 2: Disagreeing with the Demand (Fully or Partially)
If you wish to contest the demand:
Select ‘Disagree with Demand’.
Provide Reasons for Disagreement:
Already Paid: Furnish CIN, BSR code, date, challan serial number, and amount paid.
Demand Reduced by Rectification/Revision: Upload details of the rectification order.
Demand Reduced by Appellate Order: Provide appellate order reference if the demand should have been reduced but hasn’t been updated.
Appeal Filed: Mention the appeal details and any stay petitions filed.
Rectification/Revised Return Filed: Share details if a revised return has been filed at CPC.
Other Reasons: Specify if the disagreement stems from other grounds.
Submit: After entering the relevant information, click Submit. A success message with a Transaction ID will be displayed.
Sample Format of a Notice under Section 156
A typical Section 156 Demand Notice includes:
Name and address of the taxpayer
PAN number
Assessment year concerned
Details of tax demand (amount and breakdown)
Due date for payment
Instructions for payment process
Contact information for further queries
Time Limit to Respond to the Demand
The notice issued under Section 156 will generally specify that the outstanding amount must be paid within 30 days from the date of service. However, if necessary in the interest of revenue, the Assessing Officer (AO), with prior approval from the Joint Commissioner of Income Tax (JCIT), may reduce this time period.
In exceptional circumstances, an assessee may request an extension of the payment timeline or seek approval to pay in installments. Such applications must be submitted before the expiry of the initial 30-day period.
Consequences of Delay / Penalty for Non-Payment
Failure to settle the outstanding demand within the specified time can lead to additional financial consequences, including interest and penalties:
Interest under Section 220(2)
Interest is charged at 1% per month or part of a month on the unpaid amount after the 30-day deadline.
The interest continues to accrue until the full amount is paid, even if an installment facility has been approved.
Penalty under Section 221
The Assessing Officer may impose a penalty of up to the amount of the outstanding demand.
However, before imposing any penalty, the assessee must be given a reasonable opportunity to be heard.
No penalty will be levied if the assessee can demonstrate that the failure to pay was due to reasonable and sufficient cause.
Frequently Asked Questions (FAQs)
Q1. When does an assessee receive a notice under Section 156 from the tax authorities?
An assessee receives a notice under Section 156 when the Assessing Officer determines, after an assessment or reassessment, that tax, interest, penalty, fine, or any other amount is payable.
Q2. What types of dues are covered under a Section 156 notice?
The notice can demand payment for various liabilities, including taxes, interest, penalties, fines, or any other sums owed under the provisions of the Income Tax Act.
Q3. How can I pay a demand notice issued by the Income Tax Department?
You can pay the outstanding amount through the Income Tax e-filing portal. After acknowledging the demand, select the ‘Pay Now’ option and complete the payment using net banking, debit cards, or other available online payment methods.
Q4. Can the income tax demand be paid in installments?
Yes, an assessee can request the Assessing Officer’s permission to pay the demand in installments. This application must be submitted before the end of the 30-day payment window specified in the notice.
