The Central Board of Direct Taxes (CBDT) has issued Circular No. 13/2025 dated 19 September 2025, providing specific relief in respect of interest under section 220(2) where additional demands have arisen on account of rectification of returns involving section 87A rebate.
Background
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Under the new regime [section 115BAC(1A)], incomes taxable at special rates under Chapter XII are excluded for purposes of computing tax rebate.
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Consequently, the rebate under section 87A is not admissible in such cases.
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In several instances, during return processing, the system erroneously allowed the rebate.
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When corrected through rectification under section 154, additional tax demands were raised.
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Non-payment of these demands within statutory timelines led to interest liability under section 220(2), despite the fact that the error stemmed from system-level processing.
Relief Granted
Invoking its powers under section 119, the CBDT has clarified:
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Waiver of Interest – Interest under section 220(2) shall not be charged if the rectification demand is paid on or before 31 December 2025.
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Restricted Scope – The waiver is confined solely to demands arising from withdrawal of wrongly allowed section 87A rebate.
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After Deadline – Failure to pay within the prescribed window will attract normal interest under section 220(2) as per law.
Implications
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The circular protects taxpayers from interest exposure on demands arising out of systemic errors.
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Relief is conditional and time-bound; settlement of demand by 31 December 2025 is mandatory.
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It reinforces the principle of equitable tax administration, ensuring that taxpayers are not penalised for errors not attributable to them.
CBDT Circular No. 13/2025 grants waiver of interest under section 220(2) for rectification demands.
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Applicable only to cases of section 87A rebate disallowance.
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Cut-off date: 31 December 2025.
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Non-compliance will revive the statutory levy of interest.
Conclusion
Circular 13/2025 provides time-bound relief to taxpayers, recognising the hardship caused by system-driven allowance of rebate. Professionals and taxpayers must ensure that rectification-related demands are discharged within the stipulated window to avoid avoidable interest liability.
