Section 156 Demand Notice – Meaning, Response Process & Penalties

Section 156 Demand Notice – Meaning, Response Process & Penalties

A demand notice under Section 156 of the Income Tax Act is issued by the Income Tax Department when a taxpayer is required to pay any tax, interest, penalty, fine, or any other amount arising from an order passed under the Act. This notice informs the taxpayer about the outstanding liability and the amount payable.

The Assessing Officer (AO) issues a notice under Section 156 whenever any amount becomes due as a result of an assessment, reassessment, penalty order, or any other proceedings under the Income Tax Act.

Further, intimations issued under Sections 143(1), 200A(1), and 206CB(1), where any amount is payable, are treated as demand notices under Section 156.

Generally, the taxpayer must pay the demanded amount within 30 days from the date of receiving the notice. However, in certain situations where the Assessing Officer believes that allowing 30 days may adversely affect revenue collection, a shorter payment period may be specified with prior approval from the Joint Commissioner of Income Tax (JCIT).

Quick Summary

• A Section 156 notice is issued when tax, interest, penalty, or any other amount becomes payable.
• It may arise after return processing, assessment, reassessment, or penalty proceedings.
• Taxpayers are generally required to respond or pay the amount within 30 days.
• The notice specifies the amount due and the reason for the demand.
• Taxpayers may accept, partially accept, or dispute the demand.
• Ignoring the notice may result in recovery proceedings, interest, and additional penalties.

Income Tax Act, 2025 Update

The Income Tax Act, 2025 has replaced the terms “Previous Year” and “Assessment Year” with the term “Tax Year.” For example, income earned during 2025-26 will now be referred to as Tax Year 2025-26.

Since many taxpayers are still familiar with Financial Year (FY) and Assessment Year (AY), these terms continue to be commonly used for easier understanding. The new Act has also simplified and renumbered several provisions and schedules.

What is Section 156 of the Income Tax Act?

Section 156 deals with the issuance of a demand notice whenever any tax, interest, penalty, fine, or other sum becomes payable by a taxpayer due to an order passed under the Income Tax Act.

Once the notice is received, the taxpayer is generally required to clear the outstanding demand within 30 days.

Types of Deemed Demand Notices Under Section 156

Intimation Under Section 143(1)

After processing an Income Tax Return (ITR), the Central Processing Centre (CPC), Bengaluru, issues an intimation under Section 143(1). If this intimation reflects any payable tax, interest, or penalty, it is treated as a demand notice under Section 156.

Intimation Under Section 200A(1)

The CPC issues an intimation under Section 200A(1) after processing TDS statements. Any amount shown as payable is considered a demand under Section 156.

Intimation Under Section 206CB(1)

After processing TCS statements, an intimation under Section 206CB(1) may be issued. If any amount is payable, it is deemed to be a demand notice under Section 156.

Advance Tax Demand Under Section 210(3)

The Assessing Officer may issue a notice under Section 210(3) if the estimated advance tax liability is higher than the amount already paid. Such a notice is also treated as a demand notice under Section 156.

Common Reasons for Receiving a Section 156 Demand Notice

Assessment or Reassessment Differences

A notice may be issued when the tax liability determined by the department differs from the tax already paid by the taxpayer.

TDS Mismatch

Differences between TDS claimed in the return and the department’s records can result in a demand notice.

Undisclosed Income

If any income is discovered during assessment proceedings and was not disclosed earlier, tax on such income may be demanded.

Disallowed Deductions or Exemptions

Claims for deductions or exemptions that are rejected by the department can lead to additional tax liability.

What Should You Do After Receiving a Demand Notice?

Upon receiving a notice under Section 156, it is important to review and respond to it promptly.

• Carefully read the notice and verify all details.
• Confirm whether the notice is genuine.
• Check the reasons for the demand.
• Determine whether the demand is fully correct, partially correct, subject to adjustment, or incorrect.
• Take appropriate action within the specified timeline.

How to Respond to an Outstanding Demand Notice

Step 1: Log in to the Income Tax Portal

Visit the Income Tax e-Filing portal and log in using your PAN and password.

Step 2: Access Outstanding Demand Details

• Go to Pending Actions
• Click Response to Outstanding Demand
• Review the list of outstanding demands, if any

If you wish to make immediate payment, select Pay Now and proceed to the e-Pay Tax facility.

Step 3: Submit Your Response

Choose the appropriate response option based on your situation.

If the Demand is Correct and Not Yet Paid

• Select Demand is Correct
• Choose Not Paid Yet
• Click Pay Now
• Complete the payment process
• Save the transaction details for future reference

If the Demand is Correct and Already Paid

• Select Demand is Correct
• Choose Yes, Already Paid
• Enter challan details including:
  • Minor Head
  • Challan Amount
  • BSR Code
  • Challan Serial Number
  • Date of Payment
• Upload the challan copy
• Submit the response

The portal will generate a confirmation along with a transaction ID.

If You Disagree with the Demand

• Select Disagree with the Demand
• Click Add Reasons
• Choose the relevant reason(s) for disagreement
• Provide supporting details and documents
• Submit the response

If only part of the demand is disputed, pay the accepted amount first and then submit the response for the disputed portion.

The system will generate a transaction ID as confirmation of successful submission.

Consequences of Ignoring a Section 156 Notice

Failure to respond to or pay the demand within the prescribed time may result in:

• Interest on the outstanding amount
• Additional penalties
• Adjustment of future tax refunds
• Recovery proceedings by the Income Tax Department
• Attachment of bank accounts or other assets in severe cases

Steps to Respond to a Demand Notice Using Different Options

Option 1: If You Agree with the Demand

If you accept the tax demand, choose the “Demand is Correct” option on the Response to Outstanding Amount page and acknowledge the disclaimer. Please note that once you submit your response as “Demand is Correct,” you will not be able to dispute the demand later.

If the Demand Has Not Been Paid Yet

Select “Not Paid Yet” and click “Pay Now.” You will be redirected to the e-Pay Tax portal to make the payment. Once the payment is completed successfully, a confirmation message along with a Transaction ID will be generated. Keep this Transaction ID safely for future reference.

If the Demand Has Already Been Paid

Choose “Yes, Already Paid” and select “Challan has CIN.” Then click “Add Challan Details.”

Enter the following information:

• Type of Payment (Minor Head)
• Challan Amount
• BSR Code
• Challan Serial Number
• Date of Payment
• Remarks (optional)

Upload a copy of the challan in PDF format and click “Save.”

Important Points:

• A single attachment should not exceed 5 MB.
• Multiple documents can be uploaded in a ZIP folder with a maximum size of 50 MB.

After entering the required challan information, click “Submit.”

Once the details are successfully validated, a confirmation message along with a Transaction ID will appear. Save the Transaction ID for future use.

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Option 2: If You Disagree with the Demand (Fully or Partially)

On the Response to Outstanding Amount page, select “Disagree with the Demand (Either in Full or in Part)” and click “Add Reasons.”

Choose the applicable reason(s) from the available options and click “Apply.” You may select more than one reason if required.

Common Reasons for Disagreement

Demand Already Paid

• Select the appropriate option based on your situation.
• Provide details such as CIN, BSR Code, Date of Payment, Challan Serial Number, and Amount, wherever applicable.

Demand Reduced Through Rectification or Revision

• Enter details such as the rectification order date, revised demand amount, and Assessing Officer information.

Demand Reduced Through Appellate Order

• Provide the order date, appellate authority details, and reference number if the appeal effect is yet to be given.

Appeal Filed

• Mention whether a stay petition has been filed, a stay has been granted, or payment through installments has been approved.

Rectification/Revised Return Filed with CPC

• Enter the relevant information relating to the revised return or rectification request submitted.

Rectification Filed with Assessing Officer

• Mention the application date and any relevant remarks.

Other Reasons

• Select this option if your reason is not listed and provide an explanation.

After choosing the reasons, enter the necessary details for each selected option.

Note: Once information is submitted for a particular reason, its status will be marked as Completed.

If you only partially disagree with the demand, pay the remaining outstanding amount by clicking “Pay Now.”

After payment, return to the response page and click “Submit.”

Finally, click “Confirm” to complete the submission process.

A success message and Transaction ID will be generated. Keep the Transaction ID for future reference.

After submission, the updated demand status will be available under Outstanding Demand.

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Time Limit for Responding to a Demand Notice

The taxpayer is generally required to pay the demand amount within 30 days from the date of receiving the notice.

In certain circumstances, the Assessing Officer may shorten this period after obtaining prior approval from the Joint Commissioner.

A taxpayer may also request additional time or seek permission to pay in installments. Such a request must be submitted before the expiry of the original 30-day period.

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Consequences of Delay or Non-Payment

Interest Under Section 220(2)

If the demand remains unpaid after 30 days, interest at 1% per month or part thereof becomes payable.

This interest continues to apply even if the Assessing Officer grants an extension of time or permits payment through installments.

Penalty Under Section 221

The Assessing Officer may impose a penalty of up to the amount specified in the demand notice after providing the taxpayer a reasonable opportunity to be heard.

However, no penalty will be levied if the taxpayer can demonstrate valid and sufficient reasons for the default.

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How to Check Whether the Demand Notice Is Genuine

Before taking any action, verify that the notice has actually been issued by the Income Tax Department.

1. Verify the DIN

Every valid income tax notice contains a Document Identification Number (DIN), generally mentioned on the first page.

If a notice does not contain a DIN, it may not be valid except in specific circumstances permitted by law.

2. Authenticate the Notice on the Income Tax Portal

You can verify the authenticity of the notice through the official income tax website.

Steps to Authenticate:

1. Visit the Income Tax e-Filing Portal.
2. Under Quick Links, select “Authenticate Notice/Order Issued by ITD.”
3. Enter the DIN and mobile number or provide PAN and notice details.
4. Enter the OTP received on your mobile.
5. The portal will display whether the notice is genuine.

3. Additional Verification

• Check whether the notice is available in your e-Filing account.
• Confirm that any communication has come from official government email addresses.
• If the notice cannot be authenticated on the portal, do not make any payment or submit a response until its authenticity is confirmed.

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Demand Notice vs. Intimation Under Section 143(1)

Basis	Intimation Under Section 143(1)	Demand Notice Under Section 156
Meaning	Communicates the outcome of ITR processing	Requires payment of outstanding tax dues
Purpose	Informs whether the return is accepted or adjusted	Demands payment of tax, interest, or penalty
Issued When	After processing of the income tax return	When any amount becomes payable
Payment Requirement	May or may not require payment	Requires payment or an appropriate response
Amount Shown	May indicate refund, nil demand, or tax payable	Shows tax, interest, or penalty payable
Legal Nature	Not every intimation is a demand notice	Specifically issued under Section 156
Important Point	Becomes a demand notice only if tax is payable	Must be acted upon within the prescribed period

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How we Can Assist in Responding to an Income Tax Notice

If you have received a notice from the Income Tax Department, Jatin Sethi & Co can help simplify the process through:

• Professional Guidance: Assistance from experienced Chartered Accountants and tax experts.
• Notice Evaluation: Detailed review and interpretation of the notice received.
• Document Support: Help in identifying and organizing the required documents.
• Response Preparation: Drafting accurate and compliant replies within the prescribed timelines.
• Compliance Assistance: Ensuring that your response complies with applicable tax provisions and minimizes the risk of future notices.

Get expert support to handle your tax notice efficiently and confidently.

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Income Tax Act 2025 – Section Mapping

The table below shows the corresponding provisions under the Income Tax Act, 2025:

Income Tax Act, 1961	Income Tax Act, 2025
Section 156	Section 289
Section 143	Section 270
Section 200A	Section 399
Section 234A	Section 423
Section 234B	Section 424
Section 234C	Section 425

Written by

Asha Ahuja Sethi (Head Admin at Jatin Sethi & Co., Chartered Accountants)

Shilpa Khata ( Works at Jatin Sethi & Co., Chartered Accountants)