Chapter XVI - Procedure for Assessment
Section 289
Section 289: notice of demand
Section 289 requires a demand notice when an order makes tax, interest, penalty, fine or another sum payable. A section 270 or 399 intimation can itself count as that notice. A special payment date applies only to tax or interest on qualifying section 17(1)(d) equity income allotted or transferred directly or indirectly by the current eligible start-up employer.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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 referred 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.
Introduction
The notice identifies the sum payable under an order; an intimation under section 270 or 399 determining a payable amount is deemed a demand notice.
The fourteen-day rule in subsection (3) concerns the tax or interest on the qualifying equity income included in a subsection (1) notice. Reconcile any other demanded amounts separately.
Key takeaways
Order-based demand
The Assessing Officer serves a prescribed-form notice specifying tax, interest, penalty, fine or another sum payable under an order.
Some intimations are already notices
An intimation under Section 270 or 399 determining a payable amount is deemed a notice of demand.
Eligible start-up equity has a special trigger
For qualifying Section 17(1)(d) income, the tax or interest is payable within fourteen days after the earliest of the sixty-month point, sale of the security or share, or cessation of employment.
The basic demand notice
When an order under the Act makes tax, interest, penalty, fine or another sum payable, the Assessing Officer serves a prescribed-form notice specifying the sum. An intimation under section 270 or 399 determining a sum payable by an assessee, deductor or collector is deemed to be a demand notice.
Payment timing for qualifying eligible start-up equity income
Subsection (3) applies where tax-year income includes section 17(1)(d) income from specified securities or sweat equity shares allotted or transferred directly or indirectly by the current employer, and that employer is an eligible start-up under section 140. The tax or interest on that income included in the subsection (1) demand notice is payable within fourteen days after the earliest statutory event.
- Expiry of sixty months from the end of the relevant tax year.
- Sale of the specified security or sweat equity share.
- Cessation of employment with the employer that allotted or transferred it.
Worked example (hypothetical)
An employee holds qualifying sweat equity allotted by the current eligible start-up employer. The employee sells it before sixty months have run and before employment ends. Assuming all subsection (3) conditions hold, the sale is the earliest event and the tax or interest on that income included in the demand is payable within fourteen days from it. No amount is calculated here.
Step-by-step flow for a notice of demand under Section 289
- 1
Is any sum payable because of an order passed under the Act?
Section 289(1) covers tax, interest, penalty, fine or any other sum.
- 2
Was the sum determined in an intimation under Section 270 or 399?
- Yes: The intimation is itself treated as the notice of demand (Section 289(2)). Go to the next step.
- No: The Assessing Officer serves a notice of demand in the prescribed form specifying the sum (Section 289(1)).
- 3
Does the income include a Section 17(1)(d) item from an eligible start-up employer?
Section 289(3) applies where the specified security or sweat equity shares were allotted or transferred by the current employer, being an eligible start-up referred to in Section 140.
- No: The demand is payable under the other provisions of the Act.
- Yes: Go to the next step.
- 4
Find the earliest of the three events
(a) Expiry of sixty months from the end of the relevant tax year; (b) sale of the security or shares; (c) the assessee ceasing to be an employee of that employer.
- 5
Pay the tax or interest on that income within fourteen days
The fourteen days run from the earliest event. This relief covers only the tax or interest on that income, not the rest of the demand.
Practical checklist
Do
- Reconcile the prescribed notice or deemed intimation with the underlying order and payable sum.
- Identify the section 17(1)(d) income component and confirm that the current employer that allotted or transferred the security directly or indirectly is an eligible start-up under section 140.
- Record the sixty-month point, sale date and cessation date; use the earliest event for that component's fourteen-day window.
Avoid
- Apply the special equity-income payment date to every amount in a mixed demand notice.
Illustrative example
Worked example: start-up ESOP tax in a demand
Hypothetical facts (illustration only, not a real taxpayer): Ms. Pillai's assessment for tax year 2026-27 results in a notice of demand for ₹3,40,000. Of this, ₹1,10,000 is tax and interest on an income under Section 17(1)(d) from shares allotted by her current employer, an eligible start-up referred to in Section 140. She sells those shares on 10 August 2029 and is still employed there. All amounts and dates are assumed.
Split the demand
Section 289(3) covers only ₹1,10,000. The remaining ₹3,40,000 − ₹1,10,000 = ₹2,30,000 is payable under the other provisions of the Act.
Event (a)
Sixty months from 31 March 2027 ends on 31 March 2032.
Event (b)
The sale takes place on 10 August 2029.
Earliest event and due date
The sale is the earliest event, so the ₹1,10,000 is payable within fourteen days from 10 August 2029, that is, by 24 August 2029.
Outcome
- ₹1,10,000 is due by 24 August 2029.
- The ₹2,30,000 balance is not deferred by Section 289(3).
Frequently asked questions
Can an intimation count as a notice of demand?
Yes. An intimation under section 270 or 399 that determines a payable amount is deemed a notice of demand under section 289(2).
Does subsection (3) defer the whole demand?
It sets the payment date for tax or interest on qualifying section 17(1)(d) income included in the subsection (1) notice. Other amounts in the demand need separate treatment.
When does the fourteen-day period begin?
Use the earliest of the sixty-month point, sale date or cessation of employment, after verifying the current-employer and eligible start-up conditions.
Need help applying this provision to your situation?
Talk to our team about a notice of demand you've receivedLast updated 2026-10-10