CBDT Interest Waiver under Section 201(1A)(ii)/206C(7): Time-Bound Relief for TDS/TCS Defaults Due to Technical Glitches

Introduction

In practice, many deductors and collectors find themselves facing interest demands under Section 201(1A)(ii) or Section 206C(7) of the Income-tax Act, 1961, despite having deposited the TDS/TCS within the prescribed due date. This typically arises when, due to technical glitches in banking or payment systems, the tax amount-though debited from the assessee's bank account on or before the due date-is reflected as credited to the Government account only after the statutory deadline. As a result, interest liability is auto-populated on the TRACES portal.

To address such genuine hardship scenarios, the Central Board of Direct Taxes (CBDT) has introduced a time-bound waiver mechanism through two important circulars:

1. Circular No. 5/2025 dated 28 March 2025, and

2. Clarification dated 1 July 2025 (referred to as Circular No. 8/2025).

When read together, these circulars constitute a definitive administrative regime under Section 119 of the Act for waiving interest in cases involving technical delays beyond the assessee's control, provided specific procedural and evidentiary conditions are met.

This article analyses the legal framework, compliance requirements, and strategic roadmap for deductors/collectors and tax professionals to utilise this waiver facility effectively.

1. Statutory and Chronological Framework

2. Core Conditions and Procedural Safeguards under Circular No. 5/2025

2.1 Eligibility Criteria (Para 3)

An application for waiver will be considered only if both the following conditions are cumulatively fulfilled:

• Timely Debit: The TDS/TCS amount was debited from the assessee's bank account on or before the statutory due date.
• Delay Due to Technical Glitch: The delay in Government credit was caused by technical problems beyond the assessee's control, such as NEFT/RTGS failure, server downtime, or banking network outage.

2.2 Procedural Safeguards

• The concerned authority (CCIT/DGIT/Pr.CCIT) shall pass a speaking order only after verifying the technical glitch with the banking institution or the Directorate of Systems.
• Refunds may be granted even in cases where interest has already been paid, provided waiver is sanctioned.

2.3 Statutory Timelines (Paras 6 to 8)

• Filing Deadline: The application must be filed within one year from the end of the financial year to which the interest pertains.
• Disposal Period: The authority is bound to pass an order within six months from the end of the month in which the application is received.
• Finality of Order: The order passed by the designated authority shall be final and not appealable before CBDT.

3. Clarificatory Circular Dated 1 July 2025 - Retrospective Relief Confirmed

CBDT's Clarification (Circular 8/2025) addressed practical concerns raised by field authorities and confirms:

4. Checklist for Deductors and Collectors

To qualify for interest waiver, the applicant must ensure the following:

1. Proof of Timely Debit: Bank challan or statement evidencing that the tax was debited on or before the due date.

2. Evidence of Technical Glitch: Written confirmation from the bank or payment gateway, or server downtime logs from NSDL/TRACES.

3. Timely Filing: The waiver application must be filed within one year from the end of the relevant financial year.

4. Supporting Documentation: Attach self-certified chronology, copy of the interest notice, and any relevant system communications.

5. Step-by-Step Compliance Roadmap for Tax Professionals

6. Strategic Considerations and Risk Mitigation

• No Condonation Permitted: There is currently no provision for filing waiver applications beyond the one-year timeline. Firms must strictly adhere to the limitation period.
• Standardisation of Bank Templates: Request standardised glitch-verification formats from banks to avoid delays in processing.
• Writ Remedy Available: In the event of arbitrary or non-speaking rejection of an application, a writ petition under Article 226 of the Constitution may be filed. Sethi Agencies v. CBDT (393 ITR 660) remains relevant here.
• Maintain Audit Trail: Retain all logs, server reports, and communication history to substantiate that the delay was beyond the control of the deductor/collector.

Conclusion

CBDT's Circular No. 5/2025 and the Clarification issued on 1 July 2025 have introduced a structured, fair, and time-bound framework for addressing interest liabilities that arise purely due to technical failures, despite the assessee's compliance. However, the relief is strictly conditional upon timely application and the availability of substantive evidence.

Chartered Accountants and tax professionals should proactively audit their clients' ledger data for prior financial years and initiate timely applications wherever applicable. A well-documented and diligently filed waiver application can result in considerable savings for the client and enhance procedural compliance.

For Assistance

For end-to-end professional support, including:

• TDS Return Filing
• Income-tax Return (ITR) Filing for all categories of assessees
• Interest Waiver Applications under CBDT Circular 5/2025
• Refund Claims and Rectification Proceedings
• Representation & Litigation Support under Income Tax and GST laws at all levels - from Assessing Officer to CIT(A), ITAT, High Court, or GST Appellate Authorities
• Any other professional advisory, compliance, or representation services under the Income-tax Act, GST laws, Companies Act, or FEMA

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