Section 438
Section 438: set off and withholding of refunds in certain cases
Section 438 gives tax authorities two related powers over a refund that is otherwise due: first, to set it off against other tax the same person owes instead of paying it out; and second, to withhold a refund for a limited period where assessment or reassessment proceedings are still pending.
Setting off a refund against other dues
Sub-section (1): where a refund becomes due or is found due to any person, the Assessing Officer, Commissioner, Principal Commissioner, Chief Commissioner or Principal Chief Commissioner may, instead of paying out the refund, set off the refund amount (or any part of it) against any sum remaining payable by that person under the Income-tax Act, 1961 or under this Act.
Sub-section (2): before taking any such action, the authority must give the person written intimation of the set-off it proposes to make.
Withholding a refund during pending assessment or reassessment
Sub-section (3) applies where either (a) only part of the refund has been set off under sub-section (1), or (b) no amount has been set off at all, and a refund becomes due to the person.
In that situation, if assessment or reassessment proceedings are pending in the person's case, the Assessing Officer may withhold the refund - for reasons recorded in writing, and with the prior approval of the Principal Commissioner or Commissioner - for up to 60 days from the date the assessment or reassessment is made.
Frequently asked questions
Can the tax department adjust my refund against tax I still owe?
Yes - section 438(1) lets the Assessing Officer or a senior authority set off a due refund (in full or in part) against any sum you still owe under the Income-tax Act, 1961 or the Income-tax Act, 2025, after giving you written intimation of the proposed set-off.
For how long can a refund be withheld?
Under section 438(3), where assessment or reassessment proceedings are pending, the Assessing Officer may withhold the refund for up to 60 days from the date the assessment or reassessment is made, and must record reasons in writing with the prior approval of the Principal Commissioner or Commissioner.
Related sections
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Get help responding to a refund set-off or withholding noticeLast updated 9 September 2026