IT Act 1961: Section 156 (demand notice), Section 220 (when tax payable, interest for default)
IT Act 2025: Section 319 (demand notice), Section 415 (when tax payable, interest for default)
What is This Notice?
A Section 156 notice (Section 319 under the IT Act 2025) is a formal demand notice issued by the Assessing Officer after completing an assessment — whether a regular assessment under Section 143(3), a best judgment assessment under Section 144, or a reassessment under Section 147/148 — when the assessment results in a tax demand. The notice specifies the amount of tax, interest, and penalty (if any) payable by you and the deadline for payment. It is not an assessment order in itself; it is a consequence of the assessment order.
The demand notice is issued for various components: income tax on assessed income, surcharge, health and education cess, interest under Sections 234A, 234B, and 234C for delay in filing and advance tax shortfall, interest under Section 220(2) for default in payment, and any penalty levied under Chapter XXI. The notice will state the breakdown of each component.
Your Deadline
Interest for Non-Payment: If you do not pay the demand within 30 days, interest at 1% per month (or part thereof) is charged under Section 220(2) [new Section 415(2)] from the due date until the date of actual payment. This interest runs automatically and cannot be waived except by the Chief Commissioner or Commissioner in genuine hardship cases under Section 220(2A).
Your Options on Receiving a Demand Notice
Option 1 — Pay the Demand in Full
If you agree with the assessment and the demand is correct, pay the demand within 30 days through the income tax portal (challan ITNS 280). This stops interest from accruing under Section 220(2). Keep proof of payment. The demand will be marked as settled in your tax account.
Option 2 — File a Rectification under Section 154 [new Section 305]
If the demand is the result of a mistake apparent from the record — such as a computational error, failure to give credit for TDS, double taxation of an item, or an arithmetical error in the assessment order — you can file a rectification application under Section 154. The AO must dispose of the rectification application within 6 months of the financial year in which it is filed. If the rectification reduces the demand, the revised demand becomes payable. Do not wait for rectification to be decided; if the demand is large, also apply for a stay (Option 4) simultaneously.
Option 3 — File an Appeal under Section 246A [new Section 356]
If you dispute the merits of the assessment order that generated the demand, file an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] or the Faceless Appeal Unit under Section 246A. The appeal must generally be filed within 30 days of the date of service of the assessment order (not the demand notice). Important: Filing an appeal does not automatically stay the demand. You must separately apply for a stay of demand (Option 4). However, if you pay 20% of the disputed demand, the department generally grants a stay of the remaining 80% for the period the appeal is pending before CIT(A), as per CBDT instructions.
Option 4 — Apply for Stay of Demand
If the demand is large and you are contesting it in appeal but cannot pay in full, apply for a stay of demand to the Assessing Officer (and, if necessary, to the CIT or PCIT). Under CBDT Instruction No. 1914 and subsequent circulars, payment of 20% of the disputed demand is the benchmark for granting a stay. In cases of genuine hardship or where the demand is prima facie incorrect, a higher stay may be granted. While the stay application is pending, the AO should not take coercive recovery action. If the AO rejects the stay, you can challenge the rejection in the High Court by way of a writ petition.
Reply Template — Rectification / Objection to Demand
To,
The Assessing Officer,
[Ward / Circle / ITO Name],
[Address of AO]
Subject: Application for Rectification under Section 154 / Objection to Demand Notice under Section 156
PAN: [Your PAN]
Assessment Year: [AY]
Demand Notice No.: [Notice Reference Number]
Demand Notice Date: [Date of Demand Notice]
Assessment Order Date: [Date of Assessment Order]
Sir / Madam,
I / We, [Full Name], [Proprietor / Partner / Director / Karta / Individual], having PAN [PAN], refer to the demand notice dated [Date] issued under Section 156 of the Income Tax Act, 1961, for Assessment Year [AY], demanding a total sum of ₹[Amount] (comprising tax of ₹[X], interest of ₹[Y], and penalty of ₹[Z] [if applicable]).
I / We submit as follows:
[USE THE APPLICABLE SECTION BELOW — DELETE OTHERS]
------- IF RECTIFICATION UNDER SECTION 154 -------
1. MISTAKE APPARENT FROM THE RECORD
The assessment order dated [Date] passed under Section [143(3)/147] contains the following mistake(s) apparent from the record which have resulted in an erroneous demand:
(a) TDS Credit Not Given: TDS of ₹[Amount] deducted by [Deductor Name] and reflected in Form 26AS / AIS for AY [AY] has not been credited in the assessment order. Reference: Form 26AS entry for [quarter], TAN [Deductor TAN]. The correct demand after TDS credit should be ₹[Revised Amount].
(b) Double Taxation / Incorrect Addition: The addition of ₹[Amount] on account of [item] is contrary to the facts on record as the same income was already declared at [Schedule / Item] of the ITR and taxed accordingly. This is a mistake apparent from the record.
(c) Arithmetical Error: The tax computation in the assessment order computes tax at [rate]% on [income head] instead of [correct rate]%, resulting in excess demand of ₹[Amount].
2. PRAYER FOR RECTIFICATION
In view of the above mistake(s) apparent from the record, it is respectfully prayed that the assessment order dated [Date] and the consequent demand notice dated [Date] may be rectified under Section 154 to correct the above errors, and a revised demand notice (or nil demand) may be issued accordingly.
3. STAY OF DEMAND PENDING RECTIFICATION
Pending disposal of this rectification application, it is prayed that the recovery of the demand of ₹[Amount] may be kept in abeyance to prevent coercive action on a demand that is prima facie erroneous.
------- IF OBJECTION TO DEMAND (DISPUTE ON MERITS) -------
1. BACKGROUND
I / We have filed an appeal against the assessment order dated [Date] before the CIT(A) / Faceless Appeal Unit on [Date of Appeal]. The appeal is pending. Demand of ₹[Amount] has arisen consequent to the said assessment order.
2. STAY OF DEMAND DURING APPEAL
In line with CBDT Instruction No. 1914 and subsequent office instructions, I / We have paid / are ready to pay 20% of the disputed demand of ₹[Amount], i.e., ₹[20% Amount] as a precondition for stay of the balance demand.
3. PRAYER
It is respectfully prayed that:
(a) Recovery of the balance demand of ₹[80% Amount] may be stayed pending disposal of the appeal.
(b) No coercive recovery action (attachment of bank accounts, salary, assets) may be taken for the stayed portion.
------- END OF ALTERNATIVE SECTIONS -------
4. DOCUMENTS ENCLOSED
- Copy of Assessment Order dated [Date]
- Copy of Demand Notice dated [Date]
- Copy of Form 26AS / AIS showing TDS credits [if TDS rectification]
- Copy of Appeal filing acknowledgement [if stay of demand]
- Challan for payment of 20% of demand [if stay of demand]
- [Any other supporting documents]
Yours faithfully,
[Full Name]
[Designation, if applicable]
[Address]
[Phone / Email]
[Date]
Enclosures: As listed above