Quick Summary
In a significant ruling on January 24, 2025, the Bombay High Court held that the Income Tax Department (ITD) acted arbitrarily by modifying the ITR utility software to deny Section 87A tax rebate claims on special rate incomes post-July 5, 2024. The court directed the ITD to reverse these modifications and allow all eligible taxpayers to claim the rebate. Key Highlights of the Bombay High Court's Verdict The ITR utility should not be a gatekeeper preventing taxpayers from making claims per
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FAQ :
The Bombay High Court ruled that the Income Tax Department acted arbitrarily by modifying the ITR utility to deny Section 87A tax rebate claims on special rate incomes and ordered the department to restore these claims.
Eligible taxpayers with an income up to ₹5 lakh under the old tax regime or ₹7 lakh under the new tax regime can claim a rebate under Section 87A.
The tax department must process rebate claims through assessment procedures like Section 143(1) or 143(3), rather than outright rejection via software restrictions.
The Income Tax Department argued that the Section 87A rebate applied only to income under Section 115BAC (1A) and not to special rate incomes taxed under Chapter 12, such as capital gains or lottery winnings.
Taxpayers can now claim the Section 87A tax rebate, including on special rate incomes, though these claims will be subject to scrutiny rather than outright denial by software.
Experts suggest the tax department might challenge the ruling in the Supreme Court or issue new clarifications, but for now, taxpayers should claim the rebate and stay informed.
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