New tax rules: CBDT fixes limit to waive, cut interest on pending tax dues

New tax rules: The Central Board of Direct Taxes (CBDT) has issued new limits on waiver or reduction of interest on tax payments. Based on the updated guidelines, principal chief commissioners of Income Tax have the authority to waive amounts up to Rs 50 lakh, while chief commissioners or director generals of Income Tax can waive amounts ranging from Rs 50 lakh to Rs 1.5 crore. 

Additionally, principal chief commissioners of Income Tax have the discretion to waive interest exceeding Rs. 1.5 crores. These modifications were outlined in a circular distributed on November 4, 2024.

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Income-tax Authorities    Monetary limits for reduction / waiver of interest
PCIT / CIT                       Upto Rs 50 Lakhs
CCIT / DGIT*                  Between Rs 50 Lakhs and Rs 1.50 Crores
PCCIT                             Above Rs 1.50 Crores

The authority to reduce or waive interest under Section 220(2A) is contingent upon meeting three specific conditions: 1) the payment amount has caused or would cause genuine hardship to the assessee, 2) default in interest payment was due to circumstances beyond the assessee's control, and 3) the assessee has cooperated in any inquiry relating to the assessment or proceeding for the recovery of any amount due.

According to Section 220 (2A) of the Income Tax Act, failure to pay the tax amount specified in a demand notice will result in the taxpayer being charged interest at a rate of 1% per month for the duration of the delay in payment. Furthermore, the Act grants authority to officers of the rank of Principal Chief Commissioner (PrCCIT), Chief Commissioner (CCIT), Principal Commissioner (PrCIT), or Commissioner to potentially reduce or waive the amount of interest owed.

According to the circular, taxpayers may be eligible for an interest waiver or reduction if paying the full amount would result in genuine hardship or if the default was caused by circumstances beyond their control. The circular also states that taxpayers must cooperate in assessment or recovery proceedings.

Furthermore, while there is a provision to waive interest under Section 220(2) of the Income-tax Act, there is no specified monetary limit for the waiver.

Nangia & Co LLP Partner Sachin Garg, told news agency PTI: "This move of CBDT is expected to facilitate expeditious disposal of applications by a taxpayer for waiver or reduction of interest under section 220. It may be noted that there is no change in the specified conditions that are required to be met for seeking such a reduction or waiver of interest under section 220 of the Act." 

AMRG & Associates Senior Partner Rajat Mohan said this move will promote transparency and efficiency in granting interest relief.

"By setting thresholds based on the waiver amount, it empowers officials at different levels to make quicker decisions, enhancing consistency across cases and reducing administrative bottlenecks," he added.

What is Section 220?

Section 220 of the Income-tax Act, 1961 (the Act) specifies the consequences of non-payment of tax by a taxpayer. It provides that if a taxpayer fails to pay the demand amount, then a simple interest at the rate of 1% p.m. on the demand amount can be levied. However, a taxpayer in certain prescribed circumstances can approach following income-tax authorities for reduction or waiver of the interest amount paid / payable: 
•    Principal Chief Commissioner [PCCIT] or 
•    Chief Commissioner [CCIT] or 
•    Principal Commissioner [PCIT] or
•    Commissioner [CIT]

Harsh Bhuta, Partner Bhuta Shah & Co, said: "The circumstances prescribed under Section 220 for the purpose of applying for reduction / waiver of interest amount are listed below:
>  Payment of amount of interest has caused / will cause genuine hardship to the taxpayer;
>  Default in payment of demand amount (on which interest was levied under Section 220) was owing to circumstances beyond the control of the taxpayer; and
>   The taxpayer has co-operated in any inquiry relating to assessment or recovery proceeding for any amount due from such taxpayer."