The Income-Tax (I-T) Department is allowing taxpayers who qualify for the section 87A tax rebate for FY24 to now claim it in the updated Income-Tax Return (ITR) forms — ITR-2 and ITR-3, according to a report by Business Today.
Eligible taxpayers will soon be able to submit a revised or belated income tax return to benefit from the section 87A tax rebate. According to a notice on the ITR filing portal, “The updated utilities for ITR forms 2 and 3 giving effect to the Circular No. 21 dated 31st December 2024 and including the option to update 87A rebate will be made available shortly.”
This comes after a Bombay High Court (HC) direction to the Tax Department to extend the deadline for eligible taxpayers to claim the 87A tax rebate through revised or belated ITR filings, the BT report added.
What is rebate under 87A?
The rebate under Section 87A enables taxpayers to reduce their income tax liability. One can claim the said rebate if the total income does not exceed ₹5 lakh (under the old regime) and ₹7 lakh in the new tax regime. After claiming the rebate under Section 87A, income tax liability becomes ‘nil’.
However, since July 5, taxpayers have been facing a problem as “income tax utilities are not allowing the rebate under section 87A for various special rate incomes including short-term capital gains on equity shares or equity-oriented mutual funds at 15 per cent under section 111A,” Anand Bathiya, president of Bombay Chartered Accountants’ Society (BCAS) had told Livemint then.
Effectively, this means if a taxpayer has an income under short-term capital gain accruing on account of the sale of stocks or equity mutual funds, then they are not permitted to claim the rebate even if their total income is less than ₹7 lakh under the new tax regime.
Background: Letter to CBDT
On July 16, ICAI’s direct tax committee chairman Piyush S Chhajed wrote a letter to the CBDT requesting the board to allow rebate under section 87A.
The letter mentions that the issue has already been raised with the tax department. “When grievance was raised in this regard, the reply from the income tax department helpdesk is that rebate is allowable only on tax in respect of income chargeable at normal rates and the same is not allowable on tax on any income chargeable at special rates,” the letter reads.
“This does not reflect the correct position of law, as only section 112A places such restriction and not sections 111A or 112,” counters the letter.