CBDT waives interest on demand raised due to disallowance of Sec. 87A rebate on income taxable at special rate

The Central Board of Direct Taxes (CBDT) has issued a circular to waive off the demand raised upon the taxpayers due to the disallowance of section 87A rebate on the income that is chargeable to tax at a special rate.

The provisions of section 115BAC(1A) of the Income-tax Act, 1961, are subject to the other provisions of Chapter XII of the Act. Therefore, incomes chargeable to tax at special rates as specified under various provisions of Chapter XII of the Act are not included while determining the chargeability to tax under section 115BAC(1A).

The Board has noticed that in certain cases, the returns have been processed, and a rebate was allowed under section 87A to taxpayers on incomes chargeable to tax at special rates. In such cases, rectifications have to be carried out to disallow such a rebate, which has been incorrectly allowed. Such rectifications will result in demands being raised. If the payments of such demands raised are delayed, then the same is liable for charging interest under section 220(2).

Therefore, to mitigate the genuine hardship arising to such taxpayers on account of interest payable under section 220(2), the CBDT directs that the interest payable under section 220(2) shall be waived in such cases where the payment of the demands raised is made on or before 31.12.2025.   Circular No. 13 /2025 dated 23-09-2025