Section 289 of the Income-tax Act, 2025 requires the Assessing Officer to serve a notice of demand specifying any tax, interest, penalty, fine or other sum payable. An intimation under section 270 or 399 is deemed to be such a notice.
What section 289 does
Section 289 is the notice of demand — the successor to section 156 of the Income-tax Act, 1961. It is the document that converts an assessment into a collectible sum and starts several clocks running.
Sub-section (2) matters more than its length suggests: where a sum is determined payable under section 270 (processing or assessment) or section 399 (TDS and TCS processing), the intimation is deemed to be a notice of demand. So an intimation is not merely informational — it is enforceable and it starts the thirty-day appeal period under section 358(3)(a).
Sub-section (3) carries a valuable relief for start-up employees: tax on ESOPs and sweat equity allotted by an eligible start-up referred to in section 140 is deferred, payable within fourteen days of the earliest of three events.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 156(1) | Notice of demand for any sum payable | 289(1) |
| 156, proviso | Intimation deemed to be a notice of demand | 289(2) |
| 156(2) | Deferral of ESOP tax for eligible start-ups | 289(3) |
| 17(2)(vi) | ESOP perquisite | 17(1)(d) |
| 80-IAC | Eligible start-up | 140 |
| 220 | When tax payable and default | 411 |
Section 289 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the demand
When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum payable. Service of this notice is what makes the sum recoverable and starts the appeal limitation under section 358(3)(a).
Sub-section (2) — an intimation is a demand
Where any sum is determined to be payable by the assessee, deductor or collector under section 270 or section 399, the intimation under those sections is deemed to be a notice of demand for the purposes of this section. A processing intimation therefore carries the same consequences as a formal demand — including recovery, interest under section 411, and the start of the appeal period.
Sub-section (3) — the start-up ESOP deferral
Where income includes a perquisite of the nature in section 17(1)(d) — specified security or sweat equity shares — and those shares were 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 that income included in the notice of demand is payable within fourteen days after the earliest of three events.
The three trigger events
(a) after the expiry of sixty months from the end of the relevant tax year; (b) from the date of sale of the specified security or sweat equity share by the assessee; or (c) from the date the assessee ceases to be an employee of the employer who allotted or transferred the shares. Whichever comes first sets the fourteen-day clock.
Why the deferral matters
ESOP perquisite tax arises on exercise under section 17(4)(h), often years before the shares can be sold. For start-up employees holding illiquid shares, that can mean a large tax bill with no cash. Sub-section (3) postpones payment until liquidity or exit is likely — but note it defers payment, not the charge, which still arises in the year of exercise.
Worked example
An employee of an eligible start-up exercises options in tax year 2026-27, creating an ESOP perquisite of ₹40,00,000 under section 17(1)(d).
| Event | Date | Effect under section 289(3) |
|---|---|---|
| Perquisite arises on exercise | During 2026-27 | Included in salary; tax computed and included in the notice of demand |
| Sixty months from the end of the relevant tax year | 31 March 2032 | One trigger |
| Employee sells the shares | 12 August 2029 | Earlier trigger |
| Employee resigns | 30 June 2030 | Later than the sale |
| Tax payable | Within fourteen days of 12 August 2029 | By 26 August 2029 |
Without sub-section (3), the tax on ₹40,00,000 would have been payable with the 2026-27 return, on shares the employee could not yet sell. Note that the deferral applies only where the employer is an eligible start-up referred to in section 140 — ESOPs from other employers are payable in the normal course.
Compliance checklist and due dates
- Treat a section 270 or 399 intimation as a notice of demand — it is enforceable and starts the thirty-day appeal clock under section 358(3)(a).
- Check the demand notice against the assessment order for arithmetical accuracy; errors are rectifiable under section 287.
- For start-up ESOPs, confirm the employer is an eligible start-up under section 140 before relying on the deferral.
- Diarise all three trigger events in sub-section (3) and pay within fourteen days of the earliest.
- Remember the deferral postpones payment, not the charge — the perquisite is taxed in the year of exercise under section 17.
- Where the demand is disputed, file the appeal and a stay application; the demand remains payable under section 411 unless stayed.
Common mistakes
- Treating a processing intimation as informational. Sub-section (2) deems it a notice of demand.
- Missing the appeal window because the thirty days ran from service of the intimation.
- Assuming the ESOP deferral applies to all employers; it is limited to eligible start-ups under section 140.
- Overlooking that resignation triggers the deferred tax even if the shares are unsold.
- Believing the deferral removes the tax; it only postpones payment.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.