Published 19 October 2026
An “outstanding demand” appears on the e-filing dashboard with an amount, an assessment year and a “Pay Now” button. Behind it may be an intimation from processing, an assessment order, a rectification, or a penalty, sometimes for a year the taxpayer has forgotten. Left alone, it accrues interest. It will also be set off against the next refund, and it can lead to recovery action. The reader’s difficulty is working out where the demand came from, whether it is right, and which of the portal’s responses fits. Where the demand is under appeal, the further question is how to keep it from being collected meanwhile.
Which Act governs which years
A demand arising from a proceeding for assessment year 2026-27 or earlier is a demand under the Income-tax Act, 1961. Section 536(2)© of the Income-tax Act, 2025 keeps those proceedings under the old Act. Section 536(2)(i) adds that “any sum payable under the repealed Income-tax Act may be recovered under this Act without prejudice to any action already taken”. Interest on such defaults after 1 April 2026 follows the old Act’s provisions, at the rate the new Act specifies (section 536(2)(g), as substituted by the Finance Act, 2026). Demands for tax year 2026-27 onwards arise wholly under the 2025 Act.
| Point | 1961 Act | 2025 Act |
|---|---|---|
| Notice of demand; intimation deemed a demand | s.156 | s.289 |
| Pay within 30 days | s.220(1) | s.411(1) |
| Interest at 1 per cent a month | s.220(2) | s.411(3) |
| Extension or instalments | s.220(3) | s.411(5) |
| Waiver or reduction of interest | s.220(2A) | s.411(7) |
| Stay pending appeal | s.220(6) | s.411(12) |
| Set-off against refunds | s.245 | s.438 |
Where the demand comes from
Under section 156, a notice of demand is served whenever “any tax, interest, penalty, fine or any other sum is payable in consequence of any order”. An intimation under section 143(1) showing a sum payable “shall be deemed to be a notice of demand” (proviso to section 156(1); section 289(2)). The common sources are:
- an intimation under section 143(1); see The Intimation under Section 143(1);
- an assessment or reassessment order; see Faceless Scrutiny Assessment and Reassessment;
- a rectification order that enhances the liability (section 154(6));
- a penalty order; see Penalty Notices.
The 30 days, interest, and default
The amount “shall be paid within thirty days of the service of the notice” (section 220(1)). The Assessing Officer may shorten the period with the Joint Commissioner’s approval where allowing the full period would be “detrimental to revenue” (proviso).
After the 30 days, simple interest runs “at one per cent for every month or part of a month” until payment (section 220(2); section 411(3)). If the demand is later reduced in appeal or rectification, the interest is reduced and any excess is refunded (first proviso to section 220(2)).
An application “made by the assessee before the expiry of the due date” may lead the Assessing Officer to “extend the time for payment or allow payment by instalments” (section 220(3); section 411(5)). Failing payment, the assessee “shall be deemed to be in default” (section 220(4)).
A demand under appeal remains enforceable. It is “deemed to be valid till the disposal of the appeal by the last appellate authority” (section 220(1A); section 411(2)).
For penalties under section 439 of the 2025 Act, the Finance Act, 2026 inserted section 411(3)(b). No interest is charged on the penalty demand up to the date of the Commissioner (Appeals)’ order.
Responding on the portal
The e-filing portal’s user manual for “Response to Outstanding Demand” states that the service covers demands raised by the Centralised Processing Centre or the Assessing Officer. The path is Pending Actions > Response to Outstanding Demand. The page lists each demand with a Pay Now button and a Submit Response button. It also offers downloads of the “Latest section 245 notice” and “Section 245 Notice issued earlier”.
The manual describes two responses:
-
Demand is Correct. The filer then chooses between two routes:
- “Not paid yet”, which leads to Pay Now and the e-Pay Tax page;
- “Yes, Already paid and Challan has CIN”, which requires the challan details (minor head, amount, BSR code, serial number, date) and a PDF of the challan of up to 5 MB.
The manual records a disclaimer: “Once you submit the response as Demand is correct, then you cannot Disagree with Demand later on.”
-
Disagree with the demand (Either in full or in Part). The filer selects one or more reasons from the portal’s list, which includes “Others”, and gives details for each. Any undisputed part can be paid through Pay Now in the same response.
There is no separate “partly correct” option. A partial disagreement is made through the second response, and the portal’s FAQs state that “you should pay the portion of the demand which is undisputed”. On submission a Transaction ID is displayed.
The FAQs also state the consequence of silence. If there is no response, “the demand will be confirmed and will be adjusted against your refund (if any)”. If no refund is due, the demand remains payable against the PAN.
Disagreeing on the portal is not an appeal and is not a stay. It tells the department why the demand is disputed, for example because tax was already paid or the demand has been reduced in appeal. A demand that arises from a mistake in an order is corrected by rectification. One that arises from a disputed addition is challenged by appeal.
Adjustment against refunds: section 245
Where a refund is due, the authority “may, in lieu of payment of the refund, set off the amount to be refunded … against the sum, if any, remaining payable”. It may do so only “after giving an intimation in writing to such person of the action proposed” (section 245(1)).
The portal’s e-Proceedings manual lists “Intimation u/s 245 – Adjustment against Demand” among the communications that can be viewed and answered there. This is the point at which to say that a demand is wrong, already paid, or stayed, before the refund is adjusted. Separately, section 245(2), as amended from 1 October 2024, allows a refund to be withheld where an assessment or reassessment is pending, with the Commissioner’s approval, “up to sixty days from the date on which such assessment or reassessment is made”.
Under the 2025 Act, section 438(1), as amended by the Finance Act, 2026, permits a 2025 Act refund to be set off against a sum “remaining payable under the Income-tax Act, 1961 … or this Act”. A refund for tax year 2026-27 can therefore be applied to an arrear from the old Act. See Income-Tax Refunds.
Stay of a demand under appeal
Section 220(6) provides that, where an appeal has been presented to the Commissioner (Appeals), “the Assessing Officer may, in his discretion and subject to such conditions as he may think fit … treat the assessee as not being in default in respect of the amount in dispute in the appeal … as long as such appeal remains undisposed of”. Section 411(12) of the 2025 Act is in the same terms.
The application is made to the Assessing Officer. The portal’s Response to Outstanding Demand manual does not describe a stay option.
The department’s guidelines are in CBDT Instruction No. 1914, as modified by Office Memoranda of 29 February 2016 and 31 July 2017. The 2017 memorandum set a standard payment of 20 per cent of the disputed demand. In the Budget Speech of 1 February 2026 (paragraph 113), the Finance Minister announced that “quantum of pre-payment is being reduced from 20 percent to 10 percent and will continue to be calculated only on core tax demand”. The announcement is not itself a change in the guidelines. At the time of writing, no Office Memorandum implementing the 10 per cent figure has been found. The 20 per cent standard in the 2017 memorandum therefore remains the operative text.
The percentage is a guideline, not a statutory condition. In Air Liquide Medical Systems Pvt. Ltd. v. DCIT (Madras High Court, W.P. No. 2232 of 2022, 14 February 2022), an assessment for assessment year 2018-19 had produced a demand of Rs 12,86,72,780. The Assessing Officer granted stay only on payment of 20 per cent. The Court relied on the Supreme Court’s clarification in PCIT v. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, as quoted from an earlier Madras High Court decision, that authorities may grant stay on deposit of “a lesser amount than 20% pending appeal”. It reduced the condition to 15 per cent.
The fuller treatment, including stay before the Tribunal, is in Stay of Demand Pending Appeal.
What to have ready
- The order or intimation behind the demand, identified by the assessment year and reference shown on the portal.
- Challans for any payment already made, with CIN, BSR code, serial number and date.
- Any appellate, rectification or giving-effect order that has reduced or deleted the demand.
- Proof of an appeal filed and of any stay application or stay order.
- The section 245 intimation, if one has been issued, and the refund it proposes to adjust.
Summary
- Trace the demand to its source order or intimation and to the Act that governs that year.
- Respond on the portal under Pending Actions > Response to Outstanding Demand: “Demand is Correct” (pay or give challan details), or “Disagree with the demand (Either in full or in Part)” with reasons, paying any undisputed part.
- Answer any section 245 intimation in e-Proceedings before the refund is adjusted.
- Where the demand is under appeal, apply to the Assessing Officer for stay under section 220(6), and for extension or instalments under section 220(3) before the 30 days expire.
- Correct mistakes by rectification and contest additions by appeal. The portal response does neither.
The next guide in this set, on tax deducted at source, covers TAN, and who must deduct.