The Income Tax Department has announced a major relief for resident individuals eligible to claim the Section 87A tax rebate for FY 2023-24 but were unable to do so earlier. In a late-night update on December 31, 2024, the department stated that eligible taxpayers would soon be allowed to file a revised or belated income tax return (ITR) to claim the rebate through the e-filing portal or the updated utility software for ITR Forms 2 and 3.
This decision follows an interim order by the Bombay High Court, which directed the Central Board of Direct Taxes (CBDT) to extend the revised and belated ITR filing deadlines for eligible taxpayers. As per the court's directive, the deadline for furnishing these returns has been extended from December 31, 2024, to January 15, 2025.
What is Section 87A?
Under Section 87A of the Income Tax Act, 1961, resident individuals with total income up to Rs 5 lakh under the old tax regime or Rs 7 lakh under the new tax regime are eligible for a tax rebate. This rebate can reduce the tax liability to zero, up to a maximum of Rs 12,500 under the old tax regime and Rs 25,000 under the new tax regime.
Why Was the Deadline Extended?
A controversy arose when taxpayers with special rate incomes, such as short-term capital gains (STCG), were denied the 87A rebate due to backend software updates on the e-filing portal after July 5, 2024. This led to confusion and the issuance of tax notices to affected taxpayers who had claimed the rebate in their returns.
The Bombay High Court intervened, observing that procedural hurdles should not prevent taxpayers from claiming statutory benefits. Following the court's directive, the CBDT issued Circular No. 21/2024, extending the deadline and announcing updates to the utility software for ITR Forms 2 and 3 to allow eligible taxpayers to claim the rebate.
ITR Updates and Tax Expert Insights
The Income Tax Department has confirmed that updated utilities for ITR Forms 2 and 3 will be released soon to enable taxpayers to file revised or belated returns for claiming the rebate. A tax expert noted, "This update will bring much-needed relief for eligible taxpayers and ensure compliance with the court's directives."
Key Takeaways for Taxpayers
- Only resident individuals are eligible for the extended deadline and updated ITR filing options.
- Taxpayers must file revised or belated returns by January 15, 2025, to claim the Section 87A rebate.
- Updates to ITR Forms 2 and 3 will specifically address issues related to special rate incomes.
- Other taxpayers, such as HUFs and non-residents, must adhere to regular provisions.
Next Steps for Taxpayers
Eligible taxpayers are advised to monitor the e-filing portal for updates and file revised/belated returns promptly once the updated utility becomes available. This development underscores the importance of aligning procedural updates with legislative objectives to ensure fair treatment for taxpayers.
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