CBDT clarifies interest waiver for delay in TDS/TCS due to technical glitches

The Central Board of Direct Taxes (CBDT) has provided important clarity on the waiver of interest levied under Sections 201(1A)(ii) and 206C(7) of the Income Tax Act, 1961. The clarification addresses situations where delays in crediting Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) arise due to technical issues, despite timely initiation of payment by the taxpayer.

Background: Interest on delay in TDS/TCS deposit

Under the Income Tax Act, interest is levied where there is a delay in depositing TDS or TCS to the credit of the Central Government. This typically applies even in cases where the delay is procedural in nature, leading to additional financial burden on taxpayers.

A structured direct tax advisory framework is critical to monitor such exposures and evaluate eligibility for relief mechanisms.

CBDT Circular on waiver of interest

CBDT Circular No. 05/2025 dated March 28, 2025 introduced the possibility of waiver of interest in cases where:

• TDS/TCS payment was initiated on or before the due date
• The amount was debited from the bank account of the deductor/collector
• The delay in credit to the Central Government occurred due to technical glitches

Subsequently, Circular No. 08/2025 dated July 01, 2025 provided further procedural clarity on the implementation of this waiver.

Eligibility conditions for claiming waiver

The waiver is not automatic and is subject to satisfaction of specific conditions:

• Evidence of payment initiation within the prescribed due date
• Proof of debit from the taxpayer’s bank account
• Demonstration that delay was attributable to system or technical failures beyond the taxpayer’s control

This places emphasis on maintaining robust documentation and audit trails to substantiate claims.

Authority and timeline for application

The power to grant waiver is vested with the Chief Commissioner of Income Tax (CCIT), Director General of Income Tax (DGIT), or Principal Chief Commissioner of Income Tax (Pr. CCIT).

Applications for waiver must be filed within one year from the end of the relevant financial year. For example, for interest pertaining to FY 2023–24, the application can be filed up to March 31, 2025.

Notably, the CBDT has clarified that such applications can also be entertained for periods prior to the issuance of Circular No. 05/2025, subject to adherence to the prescribed timeline.

Practical implications for taxpayers

This clarification provides a significant compliance relief for taxpayers impacted by technical disruptions in payment systems. However, the burden of proof remains on the taxpayer to demonstrate that the delay was not attributable to negligence.

• Timely initiation of payment alone is not sufficient without supporting evidence
• Documentation of banking or system errors becomes critical
• Proactive review of TDS/TCS transactions can help identify eligible cases

From a broader perspective, businesses should evaluate such cases through a taxation advisory lens to ensure that legitimate relief opportunities are not missed while maintaining compliance integrity.

Additional Resources

• Overview of key tax circulars and regulatory updates
• CBDT extensions and compliance timelines
• Recent case alerts on taxation
• Condonation of delay under Income Tax provisions
• Direct tax alerts and updates