Daijiworld Media Network - New Delhi
New Delhi, Sep 23: The Central Board of Direct Taxes (CBDT) has issued a clear directive stating that taxpayers cannot claim rebate under Section 87A on income taxed at special rates, such as short-term capital gains (STCG). The move comes in response to widespread confusion and incorrect rebate claims filed during the 2023–24 financial year.
Many taxpayers who had STCG income — taxed at a concessional rate of 15% for FY 2023–24 — incorrectly claimed the Section 87A rebate, which is meant to reduce or eliminate tax liability for those with income under Rs 5 lakh (old regime) or Rs 7 lakh (new regime). As a result, the Income Tax Department has denied these claims and begun issuing fresh tax demands, even in cases where rebates were mistakenly granted earlier during processing.
In its latest circular dated September 19, the CBDT said these incorrect rebates are now being rectified, and affected taxpayers must pay the pending taxes by December 31, 2025. If paid by the deadline, interest under Section 220(2) will be waived, offering some relief. However, any delay beyond this date could result in additional interest liability.
Since July 2024, the I-T department has actively rejected Section 87A rebate claims where total income included STCG, regardless of whether the total income was below the Rs 7 lakh threshold. The rate on STCG has now been increased to 20% starting FY 2024–25, further narrowing rebate eligibility.
The matter had reached the Bombay High Court, which in December 2024 instructed the tax department to allow affected taxpayers a chance to revise their returns. A 15-day window in January 2025 was provided, but despite this, many individuals later received tax demand notices.
The confusion was finally addressed in the Union Budget 2025, which formally clarified that incomes taxed at special rates — including STCG under Section 111A — will not be eligible for Section 87A rebate from FY 2025–26 onward.
Taxpayers who claimed such rebates incorrectly are now advised to verify their filings and settle any dues within the given deadline to avoid further penalties.