CBDT has waived interest u/s 220(2), vide Circular 13/2025 dated 13/09/2025, for late payment of tax demands raised in certain cases due to incorrect rebates allowed u/s 87A by CPC while processing certain returns under the New Tax Regime.
Background
According to Section 115BAC(1A), income is calculated by the exclusion of income that is taxed at a special rate (Chapter XII of the Income tax Act, 1961), i.e. the rebate under Section 87A is only available for income that is chargeable under this section and not for special rate taxed incomes. However, there were instances where a mistake was made by the CPC whereby the rebate on such special rate incomes was allowed while processing returns.
Impact on Taxpayers
The rectification procedure has been started by the CPC to correct these errors. It has thus led to the issuance of new tax demands to a number of taxpayers. Usually, if these demands are not met within the stipulated time, then the interest under Section 220(2) will become payable.
Relief Granted by CBDT
In order to relieve the oppression, the CBDT has resorted to its authority under Section 119 and instructed:
i) The interest under Section 220(2) will be waived if the taxpayer pays the demand due to the rectification on or before 31 December 2025.
ii) Should the payment not be made on time, interest will be calculated from the day after the original due date under Section 220(1).
Key Points to Remember
The point to be noted here is that the issue of incorrect rebate u/s 87A was the sole basis of the waiver on income taxed at special rates. The waiver is conditional on full payment of the demand by 31.12.2025. Normal interest provisions will apply after this date.
Therefore, the taxpayers getting such rectification orders must first check the computations and quickly pay off the demand so as not to become liable for interest.
CBDT Income Tax Circular 13/2025 dated 19/09/2025: Waiver of interest payable u/s 220(2) due to late payment of demand in certain cases