CBDT waives Interest u/s 220(2) for Demands Raised on Disallowance of Wrong 87A Rebate [Read Circular]

The board noted that certain income-tax returns were processed allowing rebate under section 87A even on incomes chargeable to tax at special rates under Chapter XII of the Act. As per Act, such incomes are excluded while determining eligibility for rebate under section 87A read with section 115BAC(1A). The error led to excess rebate being granted, necessitating rectifications.

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The rectification orders disallowing such rebates have resulted in additional tax demands. Ordinarily, where there is delay in payment of such demands, interest under section 220(2) would become payable.

After understanding the genuine difficulties to taxpayers in such cases, the Board has exercised its powers under section 119 to provide relief. Accordingly, it has directed that interest under section 220(2) shall be waived if the taxpayer pays the demand raised on account of such rectification on or before 31st December 2025.

However, if the payment is not made by this date, interest will be chargeable from the day immediately following the expiry of the period prescribed under section 220(1). This is expected to benefit taxpayers whose assessments were impacted by the inadvertent allowance of rebate under section 87A on income taxable at special rates.

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