CBDT Issues Clarification on Interest Waiver u/s 201(1A)(ii)/206C(7) [Read Circular]

The Central Board of Direct Taxes (CBDT) has issued a clarification dated July 1, 2025, regarding the applicability and operational scope of Circular No. 5/2025, which was issued earlier on March 28, 2025.

The circular pertains to the waiver of interest levied under sections 201(1A)(ii) and 206C(7) of the Income-tax Act, 1961, in specific cases of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) defaults.

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The issue raised by field authorities concerned the effective date of powers conferred upon the prescribed authorities namely Chief Commissioners of Income Tax (CCIT), Directors General of Income Tax (DGIT), and Principal Chief Commissioners of Income Tax (Pr.CCIT) to pass orders granting waiver of interest.

The main question was whether these waiver powers may be used retroactively for cases before March 28, 2025, or just in situations where the interest was assessed on or after the circular date.

Upon detailed examination, the CBDT has clarified three key points:

1. Authority to Grant Waiver Effective Post Circular Date:

The prescribed authority (CCIT/DGIT/Pr.CCIT) is empowered to pass orders for waiver of interest under sections 201(1A)(ii) or 206C(7) only after the issuance of Circular No. 5/2025, i.e., March 28, 2025.

2. One-Year Timeline for Filing Waiver Applications:

As per Paragraph 6 of Circular 5/2025, applications for waiver of interest must be filed within one year from the end of the financial year in which the interest is charged. For example, if the interest pertains to Financial Year 2023-24, the application for waiver must be submitted by March 31, 2025.

3. Waiver for Pre-Circular Interest Also Permitted:

The CBDT has clarified that waiver applications can also be entertained for interest charged before the issuance of Circular 5/2025, provided that they are within the time frame specified above. This means that, if their claim is submitted by the deadline, taxpayers who were assessed interest under the applicable laws before March 28, 2025, are not prohibited from seeking relief.

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