The Central Board of Direct Taxes (CBDT) has issued a significant relief circular on September 19, 2025, providing interest waiver benefits to taxpayers facing genuine hardships due to incorrect rebate allowances under the new tax regime. This circular addresses technical complications arising from the implementation of Section 115BAC(1A) of the Income Tax Act, 1961.
Background and Context
The circular addresses a specific issue related to the new tax regime under Section 115BAC(1A), where certain taxpayers were incorrectly granted rebates under Section 87A on incomes that are chargeable to tax at special rates. The provisions of Section 115BAC(1A) are subject to Chapter XII of the Income Tax Act, which means incomes chargeable to tax at special rates are excluded from determining tax liability under the new regime.
Key Problem Identified
Incorrect Rebate Processing
In several cases, tax returns had already been processed and rebates were incorrectly allowed under Section 87A on incomes that should have been taxed at special rates under Chapter XII provisions. This technical oversight required rectification, resulting in additional tax demands being raised against affected taxpayers.
Interest Liability Concern
When taxpayers delay payment of these rectified demands, they become liable for interest charges under Section 220(2) of the Income Tax Act, creating financial hardship for genuine cases where the error was not of the taxpayer's making.
CBDT's Relief Measure
Interest Waiver Directive
Under Section 119 of the Income Tax Act, the CBDT has directed that interest payable under Section 220(2) shall be completely waived for affected taxpayers who make payment of the rectified demands on or before December 31, 2025.
Conditional Relief
This waiver applies specifically to cases where:
- Returns were processed with incorrect rebate allowances under Section 87A
- Rectification orders were passed by the Centralized Processing Centre (CPC)
- Payment of the rectified demand is made within the extended deadline
Important Deadline and Consequences
Payment Deadline
December 31, 2025 is the crucial cutoff date. Taxpayers must clear their rectified tax demands by this date to avail the interest waiver benefit.
Post-Deadline Interest
If taxpayers fail to pay the rectified demand by December 31, 2025, interest under Section 220(2) will be charged from the day immediately following the original due date mentioned in Section 220(1).
Implications for Central Government Employees
Direct Relevance
Central Government employees who opted for the new tax regime under Section 115BAC(1A) and received incorrect rebates are directly covered under this relief measure.
Financial Planning
Affected employees should review their tax assessments and identify any rectification orders to ensure timely payment before the December deadline.
Professional Consultation
Given the technical nature of these provisions, employees may benefit from consulting tax professionals to understand their specific situation.
Administrative Framework
Implementation Authority: The circular has been issued by Rajendra Kumar Meena, Under Secretary, IT-Budget, CBDT, ensuring uniform implementation across all tax jurisdictions.
Wide Distribution: The circular has been distributed to all key stakeholders including:
- CBDT Chairman and Members
- Principal Chief Commissioners and Chief Commissioners of Income Tax
- Joint Secretaries and Commissioners
- Institute of Chartered Accountants of India
- All Chambers of Commerce
Strategic Recommendations for Taxpayers
Immediate Action Required:
- Review any recent rectification orders or additional tax demands
- Verify if the demand relates to incorrect Section 87A rebate on special rate income
- Calculate the total amount due and arrange for payment before December 31, 2025
- Maintain proper documentation of payments made
Long-term Compliance:
- Exercise greater caution when opting for tax regimes
- Ensure proper understanding of provisions related to special rate incomes
- Consider professional tax advice for complex scenarios
Conclusion
CBDT Circular No. 13/2025 demonstrates the government's commitment to addressing genuine taxpayer hardships arising from technical complexities in tax laws. The interest waiver provides significant relief to affected taxpayers, potentially saving substantial amounts in interest payments. However, the benefit is time-bound, making prompt action essential for eligible taxpayers to avail this relief measure.
This circular represents a balanced approach to tax administration, acknowledging system-generated errors while encouraging timely compliance through conditional relief measures.
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