How to Pay an Outstanding Income Tax Demand (and Dispute It)
Last verified: June 2026, against the Income Tax Act and related provisions cited below. Figures apply to FY 2025-26 (AY 2026-27). General information, not personal tax advice.
Received a message that you have an outstanding tax demand? It means the department has computed more tax than you paid — often via a Section 143(1) intimation or an assessment. Don’t panic, but don’t ignore it either. Here is how to view, agree with, dispute, or pay a demand.
Step 1: view the demand
Log in to the income-tax e-filing portal and open Pending Actions → Response to Outstanding Demand. It shows the assessment year, the amount, and the section under which it was raised.
Step 2: agree or disagree
- If you agree: pay the demand (next step). You can also let it be adjusted against a refund.
- If you disagree: submit a response selecting “Disagree with demand (either in full or part)” and give reasons — for example, TDS credit not considered, challan not matched, or a processing error. You may also file a rectification under Section 154 if it is an apparent mistake.
Step 3: pay the demand
Use e-Pay Tax on the portal. Select the relevant assessment year and the correct head — for a demand after processing/assessment, tax is paid under “Tax on Regular Assessment (Minor Head 400)”. After payment, the challan reflects against the demand and it is closed.
Watch for Section 245 adjustment
The department can adjust an outstanding demand against a refund due to you under Section 245 — but it must give you notice and around 30 days to respond first. If you have a genuine dispute, respond within that window rather than letting the refund be set off automatically.
Interest on delay
Unpaid demands attract interest under Section 220(2) at 1% per month until paid, so resolve agreed demands promptly.
Worked example: interest on an unpaid demand
An intimation under Section 143(1) shows a demand of ₹30,000 due within 30 days. If you neither pay nor dispute it, interest of 1% a month runs from the due date. Paying four months late costs ₹1,200 of extra interest, and the department may adjust the demand against your next refund.
If the demand is wrong
- Disagree online through “Response to Outstanding Demand” with a reason (already paid, rectification filed, appeal filed).
- Rectification under Section 154 corrects apparent mistakes such as TDS not credited.
- Appeal to the Commissioner (Appeals) within 30 days of the order for disputes on facts or law. To stop recovery meanwhile, you usually need to pay 20% of the disputed demand and apply for a stay.
Check before paying
Match the demand with your AIS and Form 26AS; many demands arise from TDS mismatches that the deductor can fix by revising its TDS return. See reading a 143(1) intimation.
What changes under the Income-tax Act, 2025
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Returns for FY 2025-26 (AY 2026-27) are still filed under the old Act, old section numbers and old forms. From tax year 2026-27 onwards, section numbers and many form numbers change — for example, Form 16 becomes Form 130, Forms 15G/15H merge into Form 121, Form 26QB becomes part of Form 141 and Form 10E becomes Form 39. The underlying rules discussed here were largely carried over; only the references change.
FAQs
Can I pay a demand in instalments?
You can request instalments from your Assessing Officer; approval is discretionary and interest continues to run.
Where do I see my tax demand?
Under “Response to Outstanding Demand” in the Pending Actions section of the e-filing portal.
Under which head do I pay a demand?
“Tax on Regular Assessment” (Minor Head 400) via e-Pay Tax, for the relevant assessment year.
Can the department take it from my refund?
Yes, under Section 245, after giving you notice and an opportunity to respond.
What if the demand is wrong?
Submit a “Disagree” response with reasons, and/or file a rectification under Section 154.
