Quick Summary
The Income Tax Department has started issuing demand notices to taxpayers who claimed a rebate under Section 87A on short-term capital gains (STCG) in their Income Tax Returns (ITRs). This move follows a July 5 modification in the ITR utility, which stopped taxpayers from availing rebates on special-rate incomes, including STCG taxable under Section 111A. Why Are Taxpayers Receiving Notices? Until July 5, 2024, taxpayers were able to claim the rebate under Section 87A even on certain special
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FAQ :
Taxpayers are receiving notices because they claimed a rebate under Section 87A on short-term capital gains (STCG) after the Income Tax Department updated its filing utility on July 5, 2024, to disallow such claims.
The updated ITR utility on July 5, 2024, stopped taxpayers from claiming the Section 87A rebate on special-rate incomes, including capital gains taxable under Section 111A.
The Bombay High Court ruled that the tax department cannot deny Section 87A rebates solely based on software restrictions and that such claims should be assessed during tax scrutiny.
Budget 2025 explicitly states that capital gains will not be eligible for the Section 87A rebate, removing any ambiguity on the matter.
Since the revision window is closed, affected taxpayers can seek a rectification of their return. However, they should be aware that this could lead to interest charges if the rectification order is not favourable.
Yes, for resident individuals opting for the new tax regime (Section 115BAC), the maximum rebate under Section 87A has increased from ₹25,000 to ₹60,000, and the income threshold for claiming it has risen from ₹7 lakh to ₹12 lakh.
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