Rectification, Recovery & Refunds — Sections 287, 411-416 & 431-438 (formerly 154, 220-232 & 237-245) | Demand Management Guide

Key Takeaways

• Section 287 (formerly Section 154) allows rectification of a mistake apparent from the record in any order passed by the tax authority — the time limit is 4 years from the date of the order.
• Section 411 (formerly Section 220) requires tax to be paid within 30 days of service of the notice of demand under Section 289 (formerly Section 156) — failure makes the assessee a "deemed defaulter."
• Section 416(3) (formerly Section 226(3)) — Garnishee order — allows the TRO to attach the assessee's bank accounts and require the bank to pay the tax demand directly.
• For stay of demand pending appeal, the assessee must generally pre-deposit 20% of the disputed demand (CBDT Office Memorandum dated 29 February 2016, updated 31 July 2017).
• Section 437 (formerly Section 244A) provides interest on refunds at 0.5% per month (6% per annum) — interest runs from the 1st day of the tax year (for advance tax/TDS refunds) or date of payment (for self-assessment tax).
• Section 438 (formerly Section 245) empowers the AO to set off refunds against any outstanding tax demand, but only after giving the assessee intimation and considering objections.
• Online rectification through the income tax portal is the primary mechanism for resolving processing errors, TDS mismatches, and demand adjustments.

Section 287: Rectification of Mistake Apparent from Record

(Income Tax Act, 2025; formerly Section 154 of the Income Tax Act, 1961)

Section 287 of the Income Tax Act, 2025 empowers income tax authorities to amend any order passed by them to rectify any mistake apparent from the record. This covers orders under Sections 270(1) (formerly 143(1)), 270(3) (formerly 143(3)), 279 (formerly 147), 287 itself (formerly 154), 356 (formerly 250), 361 (formerly 254), and any other provision.

Scope of "Mistake Apparent from Record"

| Can Be Rectified | Cannot Be Rectified | |-----------------|-------------------| | Arithmetical errors in computation | Debatable points of law | | Factual errors (wrong figures, names) | Issues requiring fresh investigation | | Non-consideration of High Court/SC judgement existing at the time of the order | Matters involving interpretation of complex provisions | | Incorrect application of tax rates | Reappreciation of evidence | | TDS/advance tax credit not granted | Issues already decided on merits in the order | | Double addition of the same income | Change of opinion on facts already considered |

Key Provisions of Section 287

| Parameter | Detail | |-----------|--------| | Who can invoke | The income tax authority on its own motion, or on application by the assessee | | Time limit | Within 4 years from the end of the financial year in which the order was passed | | Hearing | If the amendment is prejudicial to the assessee, an opportunity of hearing must be given (Section 287(3); formerly Section 154(3)) | | Appeal | Rectification order is appealable before CIT(A) under Section 356 (formerly Section 246A) | | Rule | Rule 118 of the Income Tax Rules, 2026 — electronic filing of rectification request | | Form | Online rectification request on www.incometax.gov.in (no prescribed paper form) |

Online Rectification: Common Request Types

The income tax portal allows rectification requests for the following types:

| Request Type | Purpose | |-------------|---------| | Reprocessing of return | When the CPC has processed the return incorrectly — e.g., wrong section applied, income misclassified | | TDS mismatch correction | When TDS credit as per Form 26AS/AIS is not matched with the return — requires ensuring TAN, PAN, tax year match | | Advance tax/self-assessment tax credit | When advance tax or self-assessment tax paid (per Challan 280) is not reflected in the processed return | | Demand reduction/increase | When an incorrect demand has been raised due to processing error | | Income correction | When income has been computed incorrectly due to a data entry error in the return or processing glitch | | Carry forward of losses | When losses eligible for carry forward have not been allowed in the processed return |

Filing process: Login to www.incometax.gov.in, navigate to Services > Rectification > New Request > Select Tax Year > Select Request Type > Upload corrected XML (if applicable) > Submit.

Section 288: Other Amendments

(Income Tax Act, 2025; formerly Section 155)

Section 288 provides for specific amendments to assessment orders in prescribed circumstances, including:

• Section 288(1) (formerly Section 155(1)): Correction when share of a partner in a firm is found to be different.
• Section 288(4) (formerly Section 155(4)): Amendment when TDS credit was not allowed because the deductor had not deposited TDS, but deposits it subsequently.
• Section 288(14) (formerly Section 155(14)): Amendment consequent to order of Transfer Pricing Officer.
• Section 288(20) (formerly Section 155(20)): Retrospective exemption granted to a trust under Schedule III (formerly Section 10(23C)) or Section 332 (formerly Section 12A).

These are specific amendments that do not require a "mistake apparent" — they operate on the happening of specified subsequent events.

Section 289: Notice of Demand

(Income Tax Act, 2025; formerly Section 156)

Section 289 provides that when any tax, interest, penalty, fine, or any other sum is payable as a consequence of any order passed under the Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form (Form ITNS-7) specifying the sum payable.

| Parameter | Detail | |-----------|--------| | Form | Notice of Demand (Form ITNS-7, Rule 15) | | Service | Electronically through the income tax portal, or physically | | Due date for payment | 30 days from the date of service (Section 411(1); formerly Section 220(1)) | | Extension | AO may extend the time on application by the assessee (Section 411(3); formerly Section 220(3)) |

Section 411: When Tax is Payable and Deemed Default

(Income Tax Act, 2025; formerly Section 220)

Section 411(1): 30-Day Payment Window

(formerly Section 220(1))

The assessee must pay the amount specified in the notice of demand within 30 days of service of the notice. If the assessee does not pay within this period, they are deemed to be in default.

Section 411(2): Interest on Late Payment

(formerly Section 220(2))

If the amount is not paid within 30 days, the assessee shall pay simple interest at 1% per month (or part of the month) on the amount outstanding from the date of expiry of 30 days to the date of payment.

Section 411(3): Extension of Time

(formerly Section 220(3))

On application by the assessee, the AO may extend the time for payment or allow payment in instalments, subject to conditions such as:

• Payment of interest under Section 411(2) (formerly Section 220(2)).
• Furnishing of security for the outstanding amount.
• Such other conditions as the AO deems fit.

Section 411(6): Stay of Demand Pending Appeal

(formerly Section 220(6))

Where the assessee has filed an appeal against the assessment order, the AO may stay the recovery of the demand, subject to conditions. This is the most critical provision for demand management (discussed below under "Demand Management").

Section 412: Penalty for Default in Payment

(Income Tax Act, 2025; formerly Section 221)

When an assessee is deemed in default under Section 411 (formerly Section 220), the AO may impose a penalty of an amount not exceeding the amount of tax in arrears:

| Parameter | Detail | |-----------|--------| | Maximum penalty | Equal to the amount of tax in arrears | | Hearing | Opportunity of hearing must be given before imposing penalty | | Reasonable cause | If the assessee proves the default was for good and sufficient reasons, no penalty shall be imposed | | Rule | Penalty proceedings under Section 412 (formerly Section 221) are independent of recovery proceedings |

Recovery Proceedings — Sections 413 to 421

(Income Tax Act, 2025; formerly Sections 222 to 232)

When the assessee is in default and does not pay despite the notice of demand, the AO initiates recovery proceedings through the Tax Recovery Officer (TRO):

Section 413: Certificate to Tax Recovery Officer

(formerly Section 222)

The AO draws up a recovery certificate (Form ITCP-1, Rule 60) and forwards it to the TRO, specifying the amount of arrears and the name/address of the defaulter.

Section 416(3): Garnishee Order — Attachment of Bank Accounts

(formerly Section 226(3))

This is the most commonly used recovery mechanism. The AO or TRO can:

| Step | Action | |------|--------| | 1 | Issue a notice to the bank holding the assessee's accounts | | 2 | Direct the bank to pay the tax demand from the assessee's account to the credit of the Government | | 3 | The bank is bound to comply — failure makes the bank liable for the amount | | 4 | Multiple bank accounts can be attached simultaneously | | 5 | Joint accounts can be attached to the extent of the defaulter's share |

Safeguards:

• The AO must serve a copy of the garnishee notice on the assessee.
• The assessee can object and seek release of the attachment.
• Essential bank accounts (for salary or maintenance) may be partially protected based on court orders.

Section 416(4): Attachment and Sale of Property

(formerly Section 226(4))

| Recovery Mode | Description | Rule/Form | |--------------|-------------|-----------| | Attachment of movable property | TRO can attach and sell movable property (vehicles, jewellery, inventory) | Rules 61-68 | | Attachment of immovable property | TRO can attach and sell immovable property (land, buildings) | Rules 69-73, Form ITCP-2 | | Arrest and detention | In extreme cases, the TRO can issue a warrant for arrest and detention (rarely used) | Rules 74-81, Form ITCP-3 | | Appointment of receiver | TRO can appoint a receiver for business assets | Rule 82 |

Section 419: Stay of Recovery by Court

(formerly Section 229)

Any court or tribunal can grant a stay of recovery proceedings where:

• The demand is under challenge in appeal.
• The assessee demonstrates prima facie case, balance of convenience, and irreparable harm.
• The court may impose conditions such as furnishing security or pre-deposit.

Demand Management: 20% Pre-Deposit Rule

The CBDT has issued instructions (OM dated 29 February 2016, updated 31 July 2017) providing guidelines for stay of demand pending appeal:

| Guideline | Detail | |-----------|--------| | Standard pre-deposit | Assessee must pay 20% of the disputed demand to obtain stay | | Reduction below 20% | AO can reduce the pre-deposit below 20% if the assessee demonstrates financial hardship or if the issue is covered by a favourable court decision | | Unconditional stay | Where the issue is covered by a jurisdictional High Court or Supreme Court decision in favour of the assessee | | Form | Application for stay — Form 30 (appeal application to CIT(A) includes stay request) | | Time limit | AO should decide stay application within 2 weeks of filing |

Practical approach: When a demand is raised, immediately:

1. File an appeal before CIT(A) (or online before NFAC).
2. File a stay application under Section 411(6) (formerly Section 220(6)).
3. Pay 20% of the disputed demand as a pre-deposit.
4. Request the AO to stay the remaining 80%.
5. If the AO refuses, approach the PCIT/CIT under Section 378 (formerly Section 264) or the High Court under Article 226.

Sections 431–438: Refunds

(Income Tax Act, 2025; formerly Sections 237–245)

Section 431: Refund Claim

(formerly Section 237)

If any person satisfies the AO that the amount of tax paid by him (including TDS, advance tax, self-assessment tax) exceeds the amount payable under the Act, he shall be entitled to a refund of the excess amount.

Important: No separate refund application is needed — the return of income itself is treated as a claim for refund. However, for refunds of taxes paid under old assessments or for specific heads, a separate claim may be filed.

Section 435: Withholding of Refund in Certain Cases

(formerly Section 241A)

The AO may withhold a refund if:

• Proceedings for assessment or reassessment are pending.
• The AO is of the opinion that granting the refund would adversely affect the Revenue's interests.
• The AO records reasons in writing and obtains prior approval of the Principal Commissioner or Commissioner.

The refund withheld shall be dealt with in accordance with the regular assessment once completed, and interest under Section 437 (formerly Section 244A) shall be payable on the refund if ultimately granted.

Section 437: Interest on Refunds

(formerly Section 244A)

Section 437 provides for payment of interest on refunds at the following rates:

| Type of Refund | Interest Rate | From When | To When | Rule | |---------------|--------------|-----------|---------|------| | Refund of advance tax / TDS | 0.5% per month (simple) | 1st April of the tax year | Date of refund | Rule 118B | | Refund of self-assessment tax (Section 277; formerly Section 140A) | 0.5% per month (simple) | Date of payment of tax | Date of refund | Rule 118B | | Refund arising from appellate order | 0.5% per month (simple) | Date of payment of tax originally | Date of refund | Rule 118B | | Excess refund recovered | 0.5% per month (simple) | Date of refund granted to date of recovery | — | — |

Key points:

• Interest is computed for every month or part of a month.
• If the refund is delayed due to the assessee's default (e.g., non-response to notices, invalid bank account), interest is not payable for the period of such delay (Section 437(2); formerly Section 244A(2)).
• Interest on refund is taxable as "Income from Other Sources" in the year of receipt.

Section 438: Set Off of Refunds Against Demand

(formerly Section 245)

The AO may set off the amount of refund against any sum remaining payable by the assessee under the Act:

| Requirement | Detail | |-------------|--------| | Intimation | AO must give written intimation to the assessee of the proposed set-off | | Objection | Assessee must be given opportunity to raise objections | | Adjustment | Only after considering objections can the AO proceed with set-off | | Scope | Can set off against demand of any tax year — not limited to the same year | | Refund of excess | If refund exceeds the demand, the balance refund is issued to the assessee |

Practical issue: CPC Bengaluru often adjusts refunds against outstanding demands automatically. If the demand is disputed and under appeal, the assessee should immediately file a response on the portal objecting to the set-off and requesting release of the refund.

Common Refund Issues and Resolution

| Issue | Cause | Resolution | |-------|-------|-----------| | AIS/TDS mismatch | TDS shown in Form 26AS not matching ITR | Verify TAN, PAN, assessment year in both; request deductor to file correction return | | Advance tax not credited | Challan details mismatch | File rectification under Section 287 (formerly Section 154) with challan copy; verify BSR code, date, amount | | Refund failed | Invalid bank account, KYC not updated | Pre-validate bank account on the portal; ensure PAN-Aadhaar link and KYC compliance | | Demand raised despite refund claim | Processing error at CPC | File rectification request for reprocessing; attach supporting documents | | Refund withheld | Section 435 (formerly Section 241A) — reassessment pending | Wait for reassessment completion; file response if notice received | | Refund adjusted against old demand | Section 438 (formerly Section 245) set-off | File objection if demand is disputed; provide proof of appeal and stay |

Rule 118B of the Income Tax Rules, 2026 mandates that refunds shall be issued electronically — by direct credit to the assessee's pre-validated bank account. No physical refund cheques are issued for refunds processed through CPC.

Landmark Judgement

Worked Example: Interest Calculation on Delayed Refund

Facts: Ms. Priya Mehta filed her return for Tax Year 2025-26 on 31 July 2025 claiming a refund of Rs. 2,50,000 (excess TDS and advance tax). The CPC processed the return on 15 January 2026 and issued an intimation under Section 270(1) (formerly Section 143(1)). However, the refund was actually credited to her bank account on 30 September 2026 due to processing delays.

Computation of Interest Under Section 437 (formerly Section 244A):

| Parameter | Detail | |-----------|--------| | Refund amount | Rs. 2,50,000 | | Type of refund | Excess advance tax and TDS | | Interest start date | 1 April 2025 (1st day of Tax Year 2025-26, as the refund is of advance tax/TDS) | | Interest end date | 30 September 2026 (date of actual refund) | | Period | April 2025 to September 2026 = 18 months | | Rate | 0.5% per month (simple interest) | | Interest computation | Rs. 2,50,000 x 0.5% x 18 months = Rs. 22,500 |

Result: Ms. Priya receives Rs. 2,50,000 (refund) + Rs. 22,500 (interest under Section 437) = Rs. 2,72,500.

Note: The interest of Rs. 22,500 is taxable as "Income from Other Sources" in Tax Year 2026-27 (the year in which the refund along with interest is received). Ms. Priya must report this in her return for Tax Year 2026-27.

If delay was due to assessee: Had Ms. Priya not pre-validated her bank account and the refund failed twice (between January 2026 and June 2026), the interest for those 6 months would be excluded under Section 437(2) (formerly Section 244A(2)), and interest would be computed for only 12 months = Rs. 15,000.

Expert Tip

Section Interconnect

• Also read: Chapter 11 — Assessment & Scrutiny (Sections 270-285, formerly 143-148) (assessment orders that give rise to demands and refunds)
• Also read: Chapter 14 — Appeals & Dispute Resolution (appeal procedures for challenging demands, including NFAC, ITAT, and High Court — Section 356 onwards, formerly Section 246A onwards)
• Also read: Chapter 13 — Penalties & Prosecution (penalty under Section 412 (formerly Section 221) for default in payment of demand)

Frequently Asked Questions

Q1: Can Section 287 rectification be used to raise a fresh issue not considered in the original order?

No. Section 287 (formerly Section 154) is limited to rectification of a mistake apparent from the record. It cannot be used to raise a fresh issue, re-examine evidence, or change the basis of assessment. The scope is restricted to arithmetical errors, obvious factual mistakes, non-application of binding judicial precedents, and similar clear errors. If the AO wants to address a new issue, they must use Section 279/280 (formerly Section 147/148 — reassessment) or Section 377 (formerly Section 263 — revision by PCIT), not Section 287.

Q2: What can I do if my refund has been adjusted against a demand that is already under appeal?

If your refund has been adjusted under Section 438 (formerly Section 245) against a demand that is under appeal, you can:

1. File a grievance on the income tax portal under "e-Nivaran" explaining that the demand is under appeal and stay has been granted.
2. Write to the AO requesting release of the refund, citing the appeal and stay order.
3. If the AO does not respond, approach the PCIT/CIT with a representation under Section 378 (formerly Section 264).
4. As a last resort, file a writ petition before the jurisdictional High Court under Article 226. Courts have consistently held that refunds should not be adjusted against demands that are subject to genuine disputes and pending appeals.

Q3: Is the 20% pre-deposit for stay of demand mandatory or discretionary?

The 20% pre-deposit is a CBDT guideline (not a statutory requirement). The AO has discretion to reduce it below 20% in cases of financial hardship or where the issue is covered by a favourable court decision. Conversely, the AO can require more than 20% if there are special circumstances (e.g., the assessee is likely to dispose of assets). The Bombay High Court in KEC International and subsequent decisions have held that the pre-deposit percentage must be reasonable and proportionate to the circumstances.

Q4: How long does it take for a Section 287 rectification to be processed?

For rectifications processed by CPC Bengaluru (most cases for returns filed online), the typical processing time is 30 to 90 days from the date of filing the rectification request. For rectifications processed by the jurisdictional AO (cases under scrutiny or where CPC refers the matter), it may take 3 to 6 months. The 4-year time limit applies to the AO passing the rectification order — the assessee should file the request well within this period. You can track the status on the income tax portal under Services > Rectification > View Status.

Q5: Is interest under Section 437 taxable? If yes, under which head?

Yes. Interest received on income tax refund under Section 437 (formerly Section 244A) is fully taxable as "Income from Other Sources" under Section 91 of the Income Tax Act, 2025 (formerly Section 56). It is taxable in the year in which the refund (along with interest) is received or credited to the assessee's bank account. No deduction is available against this interest income. The interest amount will be reflected in the assessee's AIS, and should be reported in the return of income for the relevant tax year.

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