Set off and withholding of refunds in certain cases
[Section-438 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 438(1) of Income Tax Act 2025
438(1) Where a refund becomes due or is found to be due to any person under this Act, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, may instead of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by such person.
Section 438(2) of Income Tax Act 2025
438(2) Any action under sub-section (1) shall only be taken after giving intimation in writing to such person of the action proposed to be taken.
Section 438(3) of Income Tax Act 2025
438(3) Where,––
- 438(3)(a) a part of the refund is set off under sub-section (1); or
- 438(3)(b) no such amount is set off,
and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of the person, may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, withhold the refund up to sixty days from the date on which such assessment or reassessment is made.
FAQs on Section 438 of Income Tax Act 2025
What is the primary provision under Section 438(1) regarding refunds?
Section 438(1) allows the Assessing Officer or higher tax authority to set off any refund due to a person against any outstanding tax amount payable by that person under the Income Tax Act, 2025.
Is the taxpayer informed before a refund is set off?
Yes, under Section 438(2), a written intimation must be given to the taxpayer before setting off the refund.
Can only a part of the refund be set off under Section 438(1)?
Yes, either the whole or a part of the refund can be set off depending on the amount payable under the Act.
What happens if no refund is set off, but proceedings are pending?
As per Section 438(3)(b), if no amount is set off but assessment or reassessment proceedings are pending, the Assessing Officer may withhold the refund for up to sixty days after such assessment or reassessment.
Who must approve withholding of refund under Section 438(3)?
The withholding of refund must be approved by the Principal Commissioner or Commissioner, and reasons must be recorded in writing by the Assessing Officer.
For how long can a refund be withheld under Section 438(3)?
The refund may be withheld for a maximum of sixty days from the date of completion of the assessment or reassessment.
Can withholding be done without assessment or reassessment proceedings?
No, refund can be withheld under Section 438(3) only when assessment or reassessment proceedings are pending.
What is the objective of permitting set off or withholding of refund?
The objective is to ensure that taxpayers do not receive refunds while still having outstanding tax liabilities, and to protect the revenue in cases where tax assessments are not yet finalized.
Is taxpayer consent required for setting off the refund?
No, taxpayer consent is not required, but a prior written intimation must be given.
Can the taxpayer challenge the withholding or set off of refund?
Yes, the taxpayer may challenge the action through appropriate legal remedies if it is not in accordance with the provisions of the Act.
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