CBDT Circular No. 13/2025: Waiver of Interest under Section 220(2) Explained
The Central Board of Direct Taxes (CBDT) has issued Circular No. 13/2025 dated September 11, 2025, providing relief to taxpayers who faced interest liability under Section 220(2) of the Income Tax Act, 1961 due to delayed payment of tax demand. This move comes as part of the government’s efforts to address genuine hardships faced by taxpayers arising from rectifications of past Income Tax Returns (ITRs).
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🔍 Background
Section 115BAC(1A) introduced under the new tax regime excludes certain incomes taxed at special rates under Chapter XII of the Income Tax Act. However, in some cases, while processing returns, rebate under Section 87A was mistakenly granted even on incomes chargeable at special rates.
When rectification orders were later issued to correct this mistake, additional demands were raised against taxpayers. As per law, if these demands were not paid on time, interest under Section 220(2) became applicable.
Recognizing the unintended hardship caused by these cases, CBDT has intervened through this circular.
📜 Key Highlights of Circular No. 13/2025
Scope of Relief
Applies to cases where rebate under Section 87A was wrongly allowed on special rate incomes and later disallowed through rectification.
Demand raised due to this correction could attract interest under Section 220(2).
Waiver of Interest
CBDT has directed that interest under Section 220(2) will be waived if the taxpayer pays the demand on or before 31st December 2025.
Condition for Waiver
Payment of the entire tax demand (arising from rectification) must be made within the specified date.
If not paid by 31.12.2025, interest under Section 220(2) will apply as per law, starting from the day immediately after the due period under Section 220(1).
Authority
The relief is granted under Section 119 of the Income Tax Act, which empowers CBDT to issue orders to reduce taxpayer hardships.
🧮 What is Section 220(2)?
Section 220(2) of the Income Tax Act deals with interest payable on late payment of demand. When an assessee does not pay the demand raised by the Assessing Officer or CPC within the time limit (usually 30 days), interest is levied until the payment date.
The rate of interest is 1% per month (simple interest) on the outstanding amount.
✅ Impact on Taxpayers
Relief for genuine cases: Many small and middle-class taxpayers were caught in this situation due to system-generated rectifications.
Deadline clarity: As long as the demand is cleared by December 31, 2025, no additional interest burden will arise.
Encourages timely compliance: Taxpayers are advised to carefully check their CPC rectification orders and ensure demands are settled before the deadline.
📌 Example
Suppose a taxpayer claimed rebate under Section 87A in AY 2024–25, even though part of the income was taxable at a special rate (say, short-term capital gains under Section 111A).
The CPC later issues a rectification order, disallowing the rebate and raising an additional demand of ₹25,000.
If the taxpayer pays this demand after the due date, normally interest under Section 220(2) would apply.
But under Circular No. 13/2025, if the payment is made before 31st December 2025, the interest will be fully waived.
🧠 Expert View
Tax professionals have welcomed this circular as a taxpayer-friendly initiative. It balances compliance requirements with relief in cases where errors arose due to system processes or interpretation issues, rather than taxpayer negligence.
📞 Need Assistance?
If you’ve received a rectification order or have questions about demands, rebates, or Section 220(2) interest, don’t wait until the last moment.
👉 Contact TaxGyany for expert help in resolving your Income Tax compliance:
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