CBDT Circular 13/2025: Waiver of Interest Under Section 220(2)

Circular No.13/2025 of 19th September 2025 issued by the Ministry of Finance's CBDT, (the Central Board of Direct Taxes). This circular provides taxpayers with relief regarding the waiver of interest payable under section 220(2) of Income-tax Act of 1961. This circular address real hardships experienced by taxpayers as a result of rectifications to returns in which rebates were wrongly permitted.

Circular History

According to section 115BAC (1A) of Income-tax Act 1961, incomes that are subject to tax at a special rate, specified by various provisions in Chapter XII, will not be included when determining tax liability under section 115BAC (1A). Also, the clause (b) in section 87A's proviso applies to any income subject to tax under Section 115BAC(1A).

Notification of Issue

The refund under section 87A for income taxed at special rates was not allowed in some cases but this rebate was incorrectly allowed. When such requests were late in being paid, the taxpayers became responsible for an additional interest as per section 220(2). It was a real hardship because the extra interest obligation wasn't due to any fault on behalf of taxpayers, but was due to correction needs that arose from an incorrect earlier allowance.

CBDT Offers Relief

CBDT used its section 119 powers to alleviate this burden. In such a case, CBDT directed the waiver of interest under section 220(2) in cases when the payment is made before or on 31.12.2025.

This waiver offers significant relief for taxpayers by preventing them from being unfairly burdened with additional interest charges that arise solely as a result of procedural corrections.

Conditions of Waiver

• There is one condition that must be satisfied before interest will be waived.
• The CPC must issue a rectification order to the taxpayer before or on 31 December 2025.

In the event of non-payment, what are the consequences?

In the event that the tax is not paid in the time frame given, i.e. on or before December 31, 2025, the section 220(2) will apply. This applies to the date immediately after the period has ended, as per the section 220(1). It means that, starting 1st of January 2026 the taxpayers would be required to pay interest again in case they do not settle their rectified demands.

Conclusion

CBDT's circular will help taxpayers who are faced with unexpected requests due to rectifications for rebates incorrectly approved. In granting the conditional waiver under section 220(2), the Board has provided fairness in tax compliance. It is strongly recommended that taxpayers receiving such rectification requests clear these by the end of 2025 or earlier to take advantage of this waiver.