New income tax rules: How to qualify for interest relief or reduced late payments

The Income Tax Department has issued new guidelines that allow tax officials to either waive or reduce the interest that taxpayers owe on late payments, provided certain conditions are met.

This adjustment is intended to simplify the exemption process, especially for taxpayers experiencing financial difficulties.

What does the law say?

Under section 220(2A) of Income Tax Lawtaxpayers who miss the deadline for payment of a demand notification amount are charged a monthly interest of 1% on the overdue amount.

However, in specific cases, senior tax officials may approve a waiver or reduction of this interest if certain requirements are met.

Who can approve waivers or discounts?

The Central Board of Direct Taxes (CBDT) issued a circular on November 4 that sets the monetary limits for exemptions or reductions depending on the rank of the tax official:

Principal Chief Commissioner (PrCCIT): Can decide on exemptions or reductions for interest amounts exceeding INR 1.5 crore.

Chief Commissioner (CCIT): Authorized to administer waivers or reductions of interest amounts between INR 50 crore and INR 1.5 crore.

Principal Commissioner (PrCIT) and Commissioner (CIT): Can approve waivers or rebates for interest amounts up to INR 50 lakh.

Conditions for relief

For a taxpayer to qualify for an interest exemption or reduction, three main conditions must be met:

Financial difficulties: The interest payment must cause or have caused actual hardship.

Uncontrollable delay: The delay should have been due to circumstances beyond the taxpayer’s control.

Cooperation: the taxpayer must have fully cooperated in the assessment of the tax or in any related procedure.

Sachin Garg, partner at Nangia & Co LLP, explained that the move is expected to speed up the processing of exemption or reduction applications as tax officers now have a clear framework for decision-making.

Rajat Mohan, Senior Partner at AMRG & Associates, pointed out that this structure “increases transparency and efficiency by empowering different levels of tax officials to take faster and more consistent decisions.”

Harsh Bhuta, partner at Bhuta Shah & Co, said: “Setting these monetary limits allows officials to manage interest relief cases more effectively, ensuring the right oversight and support for taxpayers facing real financial pressure.”