Waiver of Interest Under Income Tax Act: Key Provisions & Conditions

The Income Tax Act, 1961, allows for the waiver or reduction of interest in certain cases, primarily under Section 220(2A). Below is a detailed breakdown of the rules, eligibility, and process for seeking relief from interest penalties.

🔹 Key Provisions for Interest Waiver

1.  Applicable Sections

• • Section 220(2):Imposes 1% monthly interest on unpaid tax demands after 30 days of notice.
  • Section 220(2A):Empowers tax authorities to waive or reduce interest if specific conditions are met.

2. Conditions for Waiver (Section 220(2A))

To qualify, the taxpayer must satisfy all three statutory conditions:

1. 1. Genuine Hardship– Payment causes severe financial distress (e.g., medical emergency, business loss).
   2. Circumstances Beyond Control– Default due to unavoidable reasons (e.g., natural disaster, legal disputes).
   3. Cooperation with Tax Authorities– Full compliance in assessments/recovery proceedings.

3. Authority & Monetary Limits

4.  Judicial Precedents

• Bombay High Court (2025):Stressed that all three conditions must be met, and mere claims of hardship without proof are insufficient.
• Allahabad & Kerala High Courts:Held that cumulative compliance is mandatory (waiver denied if even one condition fails).
• Karnataka High Court (Dissenting View):Suggested waiver may be granted if partial conditions are met, but this remains an exception.

🔹 Process for Applying for Waiver

1. Submission of Application

• • File a written petitionwith jurisdictional CIT/CCIT, including:
    • Proof of hardship (bank statements, medical reports, etc.).
    • Explanation for delay (e.g., legal disputes, economic downturn).
    • Evidence of cooperation with tax authorities.

2. Time Limit for Decision

• • 12 monthsfrom the end of the month the application is received.
  • No rejection without hearingthe taxpayer.

3. Possible Outcomes

✔ Waiver Granted: Interest reduced or fully waived.

❌ Waiver Denied: If conditions are not met, interest remains payable.