Section 156 Demand Notice

As a taxpayer in India, receiving a demand notice from the Income Tax Department under Section 156 can be overwhelming, especially if you are not expecting a tax liability. However, there's nothing to be worried about. A demand notice under Section 156 is generally a formal communication requiring payment of tax, interest, or penalty and should not be confused with a scrutiny or investigation notice. Instead, the demand notice is just a simple formal payment request.

In this blog, we will understand everything about the Section 156 demand notice, what they mean, why you may receive one, and what to do next when you receive the notice.

What Is A Demand Notice

A demand notice under section 156 of the Income Tax Act is a formal communication issued by the Income Tax Department requiring the taxpayer to pay the tax, penalties, or interest due. The payment should be made within the period specified in the demand notice, which is generally 30 days from service of the notice.

Types Of (Deemed) Demand Notice Under Section 156

The different types of demand notices, or deemed demand notices, under section 156 of the Income-tax Act are as follows:

Intimation Under Section 143(1)

An intimation under Section 143(1) is treated as a demand notice under Section 156 only where any tax, interest, fee, or other sum is payable. The CPC (Central Processing Center) issues the intimation notice under section 143(1) to the taxpayer at the taxpayer's registered email address. The intimation is sent as an acknowledgment that the Income Tax Department has successfully processed the taxpayers' income tax returns. ITR processing is done automatically, and the outcome is communicated to the concerned taxpayer.

If the intimation determines any tax, interest, fee, or other sum as payable, it is treated as a demand notice under Section 156.

Intimation Under Section 200A(1)

An intimation under section 200A(1) is an intimation issued by the CPC Bengaluru. It is issued regarding the tax, penalty, or interest due on the automatic processing of TDS by the Department of Income Tax. It is also considered a demand notice under section 156.

Intimation Under Section 206CB(1)

An intimation notice under Section 206CB(1) is issued by the Central Processing Center Bengaluru. It is issued with respect to the tax, interest, or penalty due on the automatic processing of Tax Collected at Source (TCS) by the Department of Income Tax. Further, it is also considered a demand notice under section 156.

Payment Of Advance Tax Under Section 210(3)

Under Section 210(3), the assessing officer issues a demand notice for the payment of advance tax. It is also considered a demand notice under Section 156 of the Income-tax Act. This particular notice is issued under Section 210(3) when the Assessing Officer suggests that the taxpayer's estimated income justifies a higher advance tax payment than the taxpayer has paid.

What Is The Time Limit To Respond To Demand Notice

Any tax, interest, or penalty demand intimation under section 206CB(1), section 200A(1), or section 143(1) must be paid within 30 days of receipt of the intimation. However, please understand that the timeline for paying the ESOP tax is different, as we discussed above.

The payment under section 210(3) must be made within the time window of 30 days of the issue of the demand notice under section 156. That aside, if the demand notice is issued mid-year, the due date will align with the advance installment payment due date.

What Are The Ways To Respond To A Demand Notice?

When you receive a demand notice, you must evaluate why it was issued to you and calculate your liability. Now, based on your evaluation and the calculation, you must respond to a demand notice likewise:

• The demand made is correct.
• The demand made is partially correct.
• Disagree with the demand.
• Demand is not correct, but agrees to the adjustment.

How To Respond To A Demand Notice From The IT Department

In such a case, The demand notice is generally made available on the Income Tax e-filing portal and may also be communicated through email. To access the notice content, you must log in to your e-filing account at www.incometax.gov.in, where you can record your responses.

The Step-By-Step Guide To Respond To A Demand Notice

The following is the step-by-step guide to respond to a demand notice:

• Step 1: Log in to your e-filing account on www.incometax.gov.in with your user ID and password.

• Step 2: On your dashboard, click <Pending Actions> 'Response to Outstanding Demand' to view your outstanding demands.

• Step 3: At the "Response to Outstanding Demand" page, click on "Submit Response" to submit the response. 

What Are the Options for Responding to the Demand Notice? 

The following are the options to respond to the demand notice; 

A. Submit A Response If The Demand Is Correct And You Have Not Paid It 

For this case: 

• Step 1: At the "Response to Outstanding Demand" page, select "demand is correct." Before you select a response, please note that once you have selected the correct one, you cannot go back to disagree with the demand. 

• Step 2: On the same page, now select "Not Paid Yet" and click on "Pay Now". Upon clicking, you will be redirected to the e-pay tax page to make further payment. 

B: Submit A Response if the demand is correct and you have paid for it already. 

• Step 1: Go to the "Response to Outstanding Demand" page and select "Demand is correct". 

• Step 2: Select "Yes, already paid, and Challan has CIN". Click on "Add Challan Details". 

• Step 3: Now, to add the challan details, select Type Of Payment (minor head), and enter Challan Amount, BSR code, Serial Number, and select Date of Payment. Click on "Attachment" to upload the PDF copy of the challan, and then click " Save. 

• Step 4: After entering all the Challan Details, click on "Submit" the response. 

Upon successful payment, a success message will be displayed on the screen along with the transaction ID. 

C. Submit a response if you disagree with the demand (In full or in part)

• Step 1: Select the "Disagree with Demand (in full or in part)" option on the "Response to Outstanding Demand" page. Click on the "Add Reasons"
• Step 2: From the list of reasons, select your reason for disagreement, then click "Apply". 
• Step 3: Now, click the disagreement reason you added in Step 2 and fill in all the requested details. Fill in the required details for the selected reason and submit the supporting information, then click "Submit". 
• Step 4: Once the details for all the reasons listed in Step 2 have been submitted, click "Pay Now" to pay the remaining amount shown in the payment summary if you disagree partially

• Step 5: After the payment, you will be redirected to the "Response to Outstanding Demand" page. Click on the "Submit" to submit your responses. 
• Step 6: Click on "Confirm" to submit your response. 

Once the submission is successful, the transaction ID will be displayed. 

How Do Authorized Representatives View Submitted Responses?

To do; 

• Step 1: Using your valid user ID and the password, log in to the e-filing portal. 

• Step 2: Click on the <Services> "Response to the outstanding demand on your Dashboard. 
• Step 3: Now, on the "Response to Outstanding Demand" page, enter the assessee's (client's) PAN and search. If you want, you can search by assessment years as well. 

• Step 4: Once the assessee whose PAN is entered in the previous response has been submitted, click on "View" on the notice to view the response offered. 

• Step 5: You can see the reason on the outside and the amount displayed on the screen. Click "OK" to return to the previous page. 

What Are The Documents Required To Respond To The Notice

The following is the list of documents you will need to respond to the notice. 

For TDS mismatch disputes: 

• Form 26AS and AIS for the relevant assessment year.
• TDS certificates (Form 16 and Form 16A) from the deductors. 
• Bank statements showcasing the TDS deduction.

For income reporting corrections:

• An original ITR acknowledgment (ITR-V). 
• Computation of your income. 
• Bank Statement for all the Indian income sources. 
• Capital gains calculation statement (for investments or property). 

For DTAA-related demands:

• A TRC (tax residency certificate) from your country of residence. 
• Form 10F (Self-declaration for DTAA benefits)
• Proof of foreign tax payment or an assessment order from the overseas country. 

For foreign income or asset disputes:

• Foreign bank account statements. 
• Overseas investment or property documents. 
• Evidence of assets already disclosed in the Schedule FA of the previously filed Income tax return. 

For interest or penalty demands:

• Proof of your current tax payments (if claiming 234B/234C relief)
• ITR filing acknowledgment with timestamp (for 234A-related disputes). 

Ensure the documents are organized by assessment year. At times, the demands may relate to assessment years that are 3 to 5 years old. 

What Are The Consequences Of Ignoring A Section 156 Demand Notice

Ignoring a demand notice does not mean it will go away on its own; instead, it makes the situation worse and can be expensive to resolve if not addressed within the set timeline.

Here is what can happen if you do not respond to the notice within the timeline.

• Penalty Under Section 221: If the tax due under a demand notice is yet unpaid, the assessing officer has the authority to levy a penalty of up to the amount of tax in arrears, which may substantially increase your overall liability depending on the facts of the case.
• Recovery Proceedings: The income tax department can initiate recovery proceedings under Section 222, which may include attaching your bank accounts, salary, or property in India. However, this is a real risk for NRIs with Indian assets and NRO accounts.
• Interest Continues To Accrue: The unpaid demand amounts will accrue interest under Section 220(2) at 1% per month from the due date, which adds up quickly on the outstanding demand.
• Impact on Future Tax Compliance: Note that outstanding demands can restrict your ability to obtain an NOC (No Objection Certificate) for the repatriation of funds, obtain a lower TDS certificate, or clear compliance checks during property transactions.

If you have already missed the deadline, please do not assume the window has closed by now. At times, you can still respond with a valid reason for the delay- but the sooner you act, the better position you are in.

The Bottom Line

In simpler terms, when the Income Tax Department rolls out a demand notice under Section 156, it is their formal way of saying, "You owe this amount, so please pay it within 30 days from today." The reasons for receiving a demand notice vary; for many taxpayers, the notice is due to a TDS mismatch or a processing error that can be resolved easily by providing the correct documentation and a prompt response. For NRIs, the same situation can be slightly more layered in terms of regulations, specifically when the DTAA claims, foreign income, or residential status is involved. In such cases, responding to a notice without professional input can sometimes make your situation even more complicated. 

The right approach to dealing with a demand notice is to first verify the demand, check whether it is correct, and either pay it promptl or dispute it with accurate supporting documents. Regardless of how you do it, just ensure the deadline is not passed. 

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