CBDT Circular 10/2025: Relief for Invalid ITRs Filed for AY 2023-24

I. Introduction

In recent years, a large number of taxpayers have reported that their income tax returns (ITRs), duly filed for prior assessment years including Assessment Year (A.Y.) 2023-24, were erroneously marked as "Invalid" by the Centralized Processing Centre (CPC), Bengaluru. These invalidations stemmed primarily from technical or procedural issues such as Digital Signature Certificate (DSC) mismatches, incomplete e-verification, or backend processing errors, despite the fact that such returns were filed in compliance with statutory timelines.

As a result of these invalidations, assessees were subjected to unwarranted tax demands, or non-receipt of legitimate refunds, due solely to procedural bottlenecks beyond their control.

To address this systemic hardship, the Central Board of Direct Taxes (CBDT) has issued Circular No. 10/2025 dated 28th July 2025 [F. No. 225/30/2025/ITA-II], exercising its plenary powers under Section 119 of the Income-tax Act, 1961 ("the Act"). Through this circular, the CBDT has relaxed the statutory time limit for processing electronically filed returns that were erroneously invalidated.

The circular permits such returns-filed on or before 31st March 2024-to be reopened and processed afresh, and allows issuance of intimations under Section 143(1) up to 31st March 2026.

Notably, the circular also confirms that interest on refund under Section 244A shall be paid, subject to statutory provisions. However, refunds shall not be released in cases where the assessee's Permanent Account Number (PAN) remains inoperative due to non-linkage with Aadhaar, in accordance with CBDT Circular No. 03/2023 dated 28th March 2023.

II. Operative Clauses of Circular No. 10/2025

The circular provides the following operative directions:

III. Legal and Procedural Framework

1. Section 119 - Statutory Authority for Relaxation

• Section 119(1) empowers the CBDT to issue general or specific directions for the proper administration of the Income-tax Act.
• Section 119(2)(b) enables the Board to condone delays or relax timelines where strict adherence causes genuine hardship to taxpayers.

Circular No. 10/2025 is a general relaxation issued under this provision, to mitigate hardship caused by CPC's erroneous invalidations.

2. Section 143(1) - Time Limit for Intimation

• The second proviso to Section 143(1) mandates that no intimation shall be sent after nine months from the end of the financial year in which the return is filed.
• The present circular overrides this time embargo, permitting CPC to issue intimations up to 31.03.2026, even if the original deadline has lapsed.

3. Section 244A - Interest on Refunds

• Section 244A(1) entitles an assessee to receive interest on refunds, computed from the date of filing of return to the date of refund, provided the delay is not attributable to the assessee.
• In these cases, since the delay arose due to CPC system errors or validation failures, interest will be automatically payable under law.

IV. CBDT Circular No. 03/2023: Refund Restriction on Inoperative PANs

Key Highlights (F. No. 370142/14/2022-TPL, dated 28.03.2023):

• With effect from 1st July 2023, a PAN not linked with Aadhaar is deemed inoperative under Rule 114AAA of the Income-tax Rules.
• Consequences of inoperability include:
• Higher TDS/TCS deduction under Sections 206AA and 206CC;
• Ineligibility to receive refunds;
• Non-acceptance of certain income-tax forms.

Para 4 - Refund Embargo

Refunds shall not be issued unless and until the PAN is linked with Aadhaar and the prescribed fee under Section 234H has been paid. This embargo continues to apply under Circular 10/2025.

Later Clarifications

• Circular 06/2024 (dated 23.04.2024) and
• Circular 09/2025 (dated 21.07.2025)provided limited relief to tax deductors and collectors but did not alter the refund prohibition for PAN-Aadhaar linkage defaults.

V. Actionable Steps for Taxpayers and Professionals

Tax professionals and taxpayers are advised to adopt the following measures to ensure appropriate relief under Circular 10/2025:

1. Verify Return Status: Log into the Income Tax Portal and check for any return marked as "Invalid", despite being filed and verified on time. Such returns are now covered by this relaxation.
2. No Re-filing or Representation Required: The reprocessing will be automatic and system-driven. Taxpayers are advised to monitor the "e-Proceedings" or "My Account" tab for any fresh intimation under Section 143(1).
3. Ensure PAN-Aadhaar Linking: Refunds will be withheld unless the PAN is valid and operative. Taxpayers must complete the Aadhaar linkage process and pay any applicable late fee under Section 234H.
4. Review Refund Intimation and Interest: Upon processing, validate that the refund amount and interest under Section 244A are correctly computed. Any discrepancy may be rectified through online grievance redressal.
5. Maintain Audit Trail: Safeguard documentation including ITR-Vs, acknowledgement receipts, original invalidation messages, and the fresh Section 143(1) intimation for audit, loan, or compliance purposes.

VI. Conclusion

CBDT Circular No. 10/2025 is a welcome remedial measure that acknowledges the real-world implications of technical failures in tax return processing. By invoking Section 119, the CBDT has acted judiciously to prevent denial of statutory processing and refund rights due to back-end system errors.

However, the relief is conditional and non-absolute-taxpayers must ensure full compliance with PAN-Aadhaar linkage mandates to avail of refunds. Chartered Accountants and Tax Consultants should immediately review their clients' past return statuses and advise suitable steps to benefit from this compliance window-now extended till 31st March 2026.

The author can also be reached at varunmukeshgupta96@gmail.com