Income Tax Notice under Section 156: Meaning, Reasons and How to Respond

Imagine you open your email or mailbox and find a message from the Income Tax Department that says “Notice under Section 156.” Instantly, your heart skips a beat. “Does this mean I owe more tax?”

Relax. A notice under Section 156 is commonly known as a demand notice. It simply means the department has calculated that you need to pay some extra tax, penalty, interest, or fee. This could happen for many reasons, such as a mismatch in your return, late payment of taxes, or an error in your calculations.

The good news is that this notice gives you a clear picture of what you owe and how much time you have to pay it. In this article, we’ll explain the meaning of a Section 156 notice, why it’s issued, and how you should respond to avoid penalties.

What is an Income Tax Notice under Section 156?

A Notice under Section 156 of the Income Tax Act, 1961 is a formal communication issued by the Income Tax Department when you are required to pay additional tax dues.

It is popularly called a demand notice and is generally issued after:

• Processing of your return under Section 143(1), or
  
• Completion of an assessment or reassessment by the Assessing Officer.
  

Key points about Section 156 notice:

• It demands payment of tax, interest, penalty, fine, or any other sum that the department believes you owe.
  
• The notice specifies the exact amount payable and the deadline (usually 30 days).
  
• You are legally required to pay the demand within the given timeframe.
  

Example

Suppose you filed your ITR and declared ₹10,00,000 as taxable income. But the department finds that your TDS claim was overstated, and your actual tax liability is ₹20,000 more than what you paid. In this case, you will receive a demand notice under Section 156 to pay the additional ₹20,000.

In short, a Section 156 notice is the tax department’s way of saying: “Based on our assessment, you still owe this much tax. Please pay it within the due date.”

Why is a Notice under Section 156 issued?

A notice under Section 156 of the Income Tax Act is issued when the Income Tax Department determines that you owe additional money in the form of tax, penalty, interest, or fee. This demand can arise from routine processing of your return or after a deeper assessment.

Here are the most common reasons:

1. Tax Payable after ITR Processing (Section 143(1))

• When your return is processed, the system compares your declared income, deductions, and tax paid with the department’s records (Form 26AS/AIS).
  
• If there’s a shortfall, the balance tax will be demanded through a Section 156 notice.
  
• Example: You reported FD interest as ₹20,000 but your bank reported ₹30,000. The extra ₹10,000 raises your taxable income, leading to a tax demand.
  

2. Demand after Scrutiny Assessment

• If your case is selected for scrutiny under Section 143(2) and the Assessing Officer finds under-reported income or disallowed deductions, a demand notice may follow.
  
• Example: You claimed HRA exemption without proper rent receipts; the AO disallows it and raises a demand.
  

3. Incorrect or Excessive TDS/TCS Claim

• If you claimed credit for TDS/TCS that doesn’t match with the department’s records, the difference will be treated as unpaid tax.
  
• Example: You claimed TDS of ₹60,000 based on Form 16, but the employer had actually deposited only ₹50,000. The extra ₹10,000 becomes your liability.
  

4. Interest or Penalties for Late Filing/Payment

• If you filed your return late or paid tax dues after the deadline, interest under Sections 234A, 234B, 234C and penalties may be added.
  
• Example: You filed your return two months late and now owe both late filing fees and interest, shown in the Section 156 notice.
  

5. Reassessment of Past Returns

• If a past return is reopened under Section 147/148 (income escaping assessment) and additional tax liability is found, the demand will be raised through Section 156.
  
• Example: You didn’t report capital gains from selling property five years ago. On reassessment, tax plus interest is demanded.
  

6. Penalty Proceedings

If penalties are levied under various provisions (like under-reporting income, not filing return, or misreporting), the demand is formally communicated through Section 156.

✅ Quick Recap of Triggers for Section 156 Notice

• Shortfall after ITR processing.
  
• Scrutiny assessment adjustments.
  
• Incorrect TDS/TCS claim.
  
• Interest/penalty for late filing or payment.
  
• Reassessment of past returns.
  
• Penalty orders.
  

How should you respond to a Notice under Section 156?

A Section 156 notice is essentially a demand for payment. The most important thing is to check whether the demand is correct and then act within the given time (usually 30 days). Here’s how you can respond:

1. Read the Notice Carefully

• Check the amount payable and the breakup (tax, interest, penalty, or fee).
  
• Note the assessment year and deadline for payment.
  

2. Verify the Authenticity of the Notice

• Every genuine notice carries a Document Identification Number (DIN).
  
• Cross-check it on the Income Tax Portal – Notice Authentication.
  
• The notice will also appear in your e-filing account under Pending Actions > View Notices/Demands.
  

3. Match with Your Records

• Compare the demand with your ITR, Form 26AS, and Annual Information Statement (AIS).
  
• See whether the demand arises from:
  
  • Mismatch in income declared vs reported.
    
  • Incorrect deduction/exemption claimed.
    
  • Delay in tax payment or return filing.
    

4. Decide Your Course of Action

• If you agree with the demand:
  
  • Pay the amount online using Challan 280 on the income tax portal.
    
  • Generate and keep the payment receipt.
    
  • Update payment details under Pending Actions > Response to Outstanding Demand.
    
• If you disagree with the demand:
  
  • Log in to the e-filing portal.
    
  • Go to Pending Actions > Response to Outstanding Demand.
    
  • Select Disagree with Demand and provide reasons (with supporting documents).
    
  • Examples: TDS mismatch due to delayed update by employer, or deductions correctly claimed but not reflected in records.
    

5. Pay Within the Deadline

• Payment must usually be made within 30 days of receiving the notice.
  
• Delaying can lead to extra interest under Section 220(2) and recovery proceedings.
  

6. Seek Professional Help if Complex

If the demand arises from scrutiny, reassessment, or penalty proceedings, it may involve large sums. In such cases, consult a CA or tax professional to draft your response and handle appeals.

7. Keep Records Safe

Always save copies of:

• The notice,
  
• Your response filed,
  
• Payment challan/receipts, and
  
• Acknowledgement from the portal.
  

These may be useful for future scrutiny or appeals.

✅ Quick Checklist for Responding to Section 156 Notice

• Read and verify the notice.
  
• Check authenticity using DIN.
  
• Match demand with ITR, 26AS, AIS.
  
• Pay within 30 days if correct.
  
• Disagree with supporting documents if wrong.
  
• Save acknowledgements and challans.

What happens if you ignore a Notice under Section 156?

A notice under Section 156 of the Income Tax Act is not optional, it’s a legally enforceable demand notice. Ignoring it can lead to serious financial and legal consequences.

Here’s what may happen if you don’t act within the 30-day limit:

1. Accrual of Interest (Section 220(2))

• If you don’t pay the demand within 30 days, interest at 1% per month will be charged on the outstanding amount until it is paid.
  
• This means even small amounts can grow quickly into a big liability.
  

2. Penalties for Default

• Continued non-payment can attract penalties under Section 221, over and above the tax and interest due.
  
• The penalty amount is at the discretion of the Assessing Officer, depending on the severity of the default.
  

3. Recovery Proceedings

• The Income Tax Department has wide powers to recover dues. This can include:
  
  • Attaching your bank accounts or salary,
    
  • Seizing and selling your property,
    
  • Adjusting future tax refunds against the outstanding demand.
    

4. Legal Action

• In cases of willful default, the department can initiate prosecution proceedings.
  
• This may result in fines or imprisonment in extreme cases, especially if large sums are involved.
  

5. Impact on Creditworthiness

• Being flagged as a tax defaulter can affect your financial credibility.
  
• It may create hurdles in getting loans, visas, or government clearances.
  

✅ Bottom Line

Ignoring a demand notice under Section 156 only makes things worse. Even if you believe the demand is wrong, you must respond through the e-filing portal by either agreeing and paying, or disagreeing with valid reasons and documents.

The safest approach is: don’t delay, don’t ignore, act within the deadline.

Conclusion

A notice under Section 156 of the Income Tax Act is simply a demand notice asking you to pay tax, interest, penalty, or fee. It usually arises after processing your ITR or completing an assessment where the department finds a shortfall in your payments.

While the notice may feel intimidating, it’s actually straightforward: either pay the amount if it’s correct, or contest it through the income tax e-filing portal if you disagree. The key is to act within 30 days to avoid extra interest, penalties, or legal recovery actions.

Remember, ignoring a Section 156 notice will only make the problem bigger. Handling it promptly ensures you stay compliant and stress-free.

Frequently Asked Questions (FAQs)

1. What is a notice under Section 156 of the Income Tax Act?

It is a demand notice issued by the Income Tax Department, asking you to pay outstanding tax, penalty, interest, or fee within 30 days.

2. When is a Section 156 notice issued?

It is usually issued after:

• Processing your ITR (Section 143(1)),
  
• Scrutiny or reassessment, or
  
• Penalty proceedings where extra tax dues are found.
  

3. How much time do I get to pay after receiving a Section 156 notice?

You generally get 30 days from the date of the notice to make the payment. Delaying attracts 1% interest per month under Section 220(2).

4. What should I do if I disagree with the demand in the notice?

You can log in to the Income Tax e-filing portal under Pending Actions > Response to Outstanding Demand and choose “Disagree with Demand” by providing supporting documents.

5. What happens if I ignore a Section 156 notice?

Ignoring it can lead to:

• Interest at 1% per month,
  
• Penalties,
  
• Recovery actions like attachment of salary/bank accounts, and
  
• In extreme cases, prosecution.
  

6. Can a refund be adjusted against a Section 156 demand?

Yes. If you are eligible for a tax refund, the department can adjust it against the outstanding demand raised in the notice.

7. Do I need a CA to respond to a Section 156 notice?

For simple demands (like minor mismatches), you can handle it yourself online. But for larger or disputed amounts, consulting a CA or tax expert is recommended.