Income Tax Law | Refunds | Updated 27 October 2026

Section 241A of the Income-tax Act, 1961: Withholding of Refund in Certain Cases

Current legal position: Section 241A does not apply from 1 April 2023. Refund withholding under the Income-tax Act, 1961 was consolidated into Section 245. For tax years governed by the Income-tax Act, 2025, consult Section 438 and the applicable transitional provisions.

Section 241A historically allowed an Assessing Officer to withhold certain income-tax refunds when a return was selected for scrutiny and the statutory safeguards were satisfied. This article explains its original operation, subsequent amendments, and the refund withholding framework relevant to taxpayers today.

What did Section 241A provide?

Inserted by the Finance Act, 2017 with effect from 1 April 2017, Section 241A addressed refunds arising under Section 143(1) for assessment years beginning on or after 1 April 2017. Where a notice under Section 143(2) had been issued, the Assessing Officer could withhold a refund if satisfied that releasing it was likely to adversely affect the revenue, subject to written reasons and prior approval from the Principal Commissioner or Commissioner. The withholding could continue until the assessment was made.

Statutory proviso: The Finance Act, 2023 inserted a proviso stating that Section 241A would not apply from 1 April 2023. This is a change in applicability, not a deletion of the historical section from the statute book.

Meaning of the key legal provisions

Section 143(1): Processing of income-tax returns

This provision governs processing of returns and the resulting intimation, which may determine a refund or demand.

Section 143(2): Notice for scrutiny assessment

A notice under this provision initiates examination of a return through scrutiny assessment, subject to statutory conditions.

Section 241A: Former refund withholding power

Under the earlier framework, withholding was not automatic merely because scrutiny was pending. The Assessing Officer had to record reasons, consider the likely adverse effect on revenue, and obtain the prescribed prior approval.

Section 245: Set-off and withholding of refunds

With effect from 1 April 2023, Section 245 was substituted to combine refund adjustment against outstanding tax demands and withholding during pending assessment or reassessment. Sub-section (1) concerns set-off after written intimation; sub-section (2) concerns withholding with reasons recorded in writing and prior approval.

Important amendment effective 1 October 2024

The Finance (No. 2) Act, 2024 amended Section 245(2). It removed the words requiring an opinion that granting the refund was likely to adversely affect revenue and extended the permitted withholding period to 60 days from the date on which the assessment or reassessment is made. Written reasons and previous approval remain material statutory requirements. The applicable version must be checked against the relevant proceeding and period.

Income-tax Act, 2025 and transitional position

The Income-tax Act, 2025 took effect on 1 April 2026. Its Section 438 corresponds to the refund set-off and withholding framework previously addressed by Section 245 of the 1961 Act. Section 241A was marked redundant in the official legislative cross-reference. Under the transitional rules, proceedings for earlier tax years may continue under the 1961 Act; therefore, the relevant tax year and proceeding date matter when identifying the applicable provision.

What should a taxpayer do when a refund is withheld?

Review the refund status and any notice or intimation on the Income Tax Department's e-filing portal.
Identify whether the matter concerns adjustment against an outstanding demand or withholding because assessment or reassessment is pending.
Check the relevant statutory provision, reasons recorded, approval requirement and applicable time limit.
Respond to outstanding demands or notices using the portal and seek professional advice if the withholding appears inconsistent with law.

Frequently asked questions

Is Section 241A still applicable?

No. Its own proviso makes it inapplicable from 1 April 2023. Later withholding under the 1961 Act is addressed by Section 245, subject to the relevant dates and amendments.

Can the department automatically retain a refund because scrutiny is pending?

The law prescribes conditions and procedural safeguards. The applicable version of Section 245(2), or Section 438 under the new Act, must be examined; pending scrutiny alone should not be treated as a substitute for compliance with those requirements.

Does the Income-tax Act, 2025 eliminate older refund claims?

No. The Department explains that rights and liabilities arising under the 1961 Act are preserved under the transitional framework, subject to applicable law.

Official legal sources and taxpayer resources

General legal information, not individualized tax advice. Always check the statutory text and relevant notifications for the tax year and proceedings concerned.