Section 289 · Assessment
Section 289 of the Income-tax Act, 2025 — Notice of Demand (Old Section 156)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVI
📜 What the law says — Section 289, Income-tax Act 2025
289. (1) When any tax, interest, penalty, fine or any other sum is payable in
consequence of any order passed under this Act, the Assessing Officer shall
serve upon the assessee a notice of demand in such form, as may be prescribed,
specifying the sum so payable.
(2) Where any sum is determined to be payable by the assessee or the deductor or
the collector under section 270 or 399, the intimation under the said sections shall
be deemed to be a notice of demand for the purposes of this section.
(3) Where the income of the assessee of any tax year includes income of the nature
specified in section 17(1)(d) and such specified security or sweat equity shares re-
ferred to in the said section are allotted or transferred directly or indirectly by the
current employer, being an eligible start-up referred to in section 140, the tax or
interest on such income included in the notice of demand referred to in sub-section
(1) shall be payable by the assessee within fourteen days—
(a) after the expiry of sixty months from the end of the relevant tax year; or
(b) from the date of the sale of such specified security or sweat equity share
by the assessee; or
(c) from the date of the assessee ceasing to be the employee of the employer
who allotted or transferred him such specified security or sweat equity
share,
whichever is the earliest.
Modification and revision of notice in certain cases.
In plain language
What Section 289 actually says
Section 289 of the Income-tax Act, 2025 is the "Notice of Demand" provision. In plain words, whenever any tax, interest, penalty, fine or any other sum becomes payable by you as a result of an order passed under the Act — an assessment order, a rectification, an appeal effect, a penalty order, and so on — the Assessing Officer must serve you a formal notice in the prescribed form telling you exactly how much you owe. You cannot be pushed into recovery without this notice; it is the legal starting gun for demand and collection.
This section is the direct renumbered successor of Section 156 of the Income-tax Act, 1961. The substance is unchanged — only the number moved from 156 to 289 when the 2025 Act (effective 1 April 2026) replaced the old law.
The three sub-sections, decoded
- Section 289(1) — the core rule: When any sum is payable "in consequence of any order passed under this Act", the Assessing Officer serves a notice of demand in the prescribed form specifying the amount payable.
- Section 289(2) — deemed demand notices: Where a sum is determined to be payable under Section 270 (intimation on processing of return) or Section 399 (TDS/TCS statement processing), that intimation itself is deemed to be a notice of demand. So you may never get a separate paper demand — the intimation on your return processing is itself the demand.
- Section 289(3) — startup ESOP relief: For employees of eligible start-ups taxed on ESOPs / sweat equity (specified securities), the tax/interest becomes payable within 14 days of the earliest of three triggers — expiry of 60 months from the end of the relevant tax year, the date the employee sells the shares, or the date the employee leaves that employer.
Who it applies to
- Every assessee — individuals, HUFs, firms, LLPs, companies, trusts — against whom a demand is raised.
- Deductors and collectors (TDS/TCS defaulters) served with an intimation under Section 399.
- Start-up employees holding ESOPs, for the deferred-tax mechanism in 289(3).
The 30-day clock and what happens if you ignore it
The notice specifies a period — ordinarily 30 days from the date of service — within which the demand must be paid. Miss it and the consequences stack up quickly:
- Interest for late payment at 1% per month or part of a month on the unpaid amount (the successor to Section 220(2) of the old Act) starts running.
- Penalty for default can be levied — you are treated as an "assessee in default".
- Recovery action follows: the Tax Recovery Officer can attach and sell your movable/immovable property, freeze bank accounts and garnish salary.
- Pending refunds due to you may be adjusted against the outstanding demand (the intimation-and-set-off mechanism, successor to Section 245).
How it interacts with other sections
Section 289 sits at the centre of the collection machinery. It is triggered by assessment/penalty orders, it borrows its interest and default consequences from the recovery provisions, and it is modified by Section 290: if an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 reduces the demand, the AO must serve a fresh modified notice of demand, which is then treated as a notice under Section 289. You can also apply to have the demand kept in abeyance (stayed) while you file an appeal.
Practical implications for taxpayers
- Verify before you pay. Check the notice against your ITR and Form 26AS/AIS — a large share of demands arise from mismatched TDS credit or an unclaimed challan.
- Respond on the portal under "Response to Outstanding Demand" — you can agree, partly agree, or disagree with reasons.
- Don't let 30 days lapse silently — either pay, file a rectification, or file an appeal with a stay request. Silence turns you into an "assessee in default".
💡 Example
Worked example 1 — a straightforward demand. Suppose an assessment order for tax year 2026-27 determines Mr. Arjun owes an extra ₹1,20,000 in tax. The Assessing Officer serves a Section 289 notice of demand on 10 May 2027, giving 30 days (i.e., up to 9 June 2027) to pay. Arjun pays on 25 July 2027 — 46 days late, which counts as 2 months (part of a month rounds up). Late-payment interest at 1% per month = ₹1,20,000 × 1% × 2 = ₹2,400. Total payable: ₹1,22,400. Had he paid within 30 days, no interest would arise.
Worked example 2 — start-up ESOP under Section 289(3). Ms. Kavya, an employee of an eligible start-up, is allotted ESOPs in tax year 2026-27 with a perquisite value of ₹8,00,000. She does not sell the shares and stays with the employer. Her tax on the ESOP perquisite (say ₹2,49,600 at 31.2%) is not payable immediately — it becomes due within 14 days of the earliest of: 60 months from the end of TY 2026-27, the sale of shares, or her exit from the company. If she resigns in December 2029, the tax falls due within 14 days of that date, even though 60 months have not elapsed.
A relatable story. Rohit filed his return and forgot about it. Three months later he got an "intimation" email and assumed it was routine — so he ignored it. That intimation was, under Section 289(2), a deemed notice of demand for ₹18,000 arising from a TDS mismatch (his employer had filed a late TDS return). By the time his CA looked at it, the 30 days had passed, 1% monthly interest had started, and a refund from another year had been adjusted against it. The lesson: an intimation is not just information — it can be the demand itself, and the 30-day clock is already ticking.
| Aspect | Position under Section 289, Income-tax Act 2025 |
|---|
| Old-law equivalent | Section 156 of the Income-tax Act, 1961 |
| What triggers it | Any tax, interest, penalty, fine or other sum payable due to an order under the Act |
| Who issues it | The Assessing Officer (in prescribed form) |
| Standard time to pay | Generally 30 days from date of service of the notice |
| Deemed demand [289(2)] | Intimations under Section 270 (return processing) and Section 399 (TDS/TCS) are treated as demand notices |
| Start-up ESOP [289(3)] | Tax due within 14 days of the earliest of: 60 months from end of tax year / sale of shares / leaving employer |
| Interest on late payment | 1% per month or part of a month on the unpaid amount |
| Consequence of default | Treated as "assessee in default"; penalty and recovery (attachment, bank freeze, salary garnishment) |
| Modification (IBC) | Section 290 — modified notice served if demand reduced by IBC Adjudicating Authority |
Related sections
Section 290 — Modification and revision of notice of demand (IBC) Section 270 — Processing of return and intimation Section 399 — Processing of TDS/TCS statements Section 415 — Interest for default in payment of demand Section 416 — When an assessee is deemed to be in default Section 245 — Set-off of refunds against outstanding demand
Forms under this section
Income-tax forms (2025) prescribed under Section 289:
Frequently asked questions
What is a Section 289 notice of demand?
It is the formal notice served by the Assessing Officer specifying the tax, interest, penalty, fine or other sum you must pay as a result of an order under the Income-tax Act, 2025. It is the renumbered version of the old Section 156.
How much time do I get to pay a Section 289 demand?
Generally 30 days from the date the notice is served on you, as specified in the notice itself. In some cases the Assessing Officer may allow a shorter period with prior approval.
What happens if I don't pay within 30 days?
You become an 'assessee in default'. Interest at 1% per month (or part of a month) accrues on the unpaid amount, a penalty may be levied, and the Tax Recovery Officer can attach your assets, freeze bank accounts or garnish salary.
Is the intimation I received the same as a demand notice?
Yes. Under Section 289(2), an intimation determining sum payable under Section 270 (return processing) or Section 399 (TDS/TCS) is deemed to be a notice of demand, so you should treat it as one and respond within the stated period.
How do I respond if I think the demand is wrong?
Log in to the e-filing portal, go to 'Response to Outstanding Demand', and select agree, partially agree, or disagree with reasons. You can also file a rectification or an appeal, and request a stay of the demand while the appeal is pending.
What is the ESOP rule in Section 289(3)?
For eligible start-up employees, tax on ESOP/sweat-equity perquisites is deferred and becomes payable within 14 days of the earliest of: 60 months from the end of the tax year, the sale of the shares, or leaving the employer.
Can a demand notice be reduced later?
Yes. If the demand is reduced by an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, Section 290 requires the Assessing Officer to serve a modified notice of demand, which is then treated as a notice under Section 289.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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