New Delhi, Sept 24: The Central Board of Direct Taxes (CBDT) has clarified that taxpayers cannot claim a rebate under Section 87A of the Income Tax Act on income taxed at special rates, like short-term capital gains (STCG).
In the financial year 2023-24, many taxpayers claimed a rebate on STCG. However, the Income Tax department denied these claims and raised demands for pending taxes.
The department has now asked taxpayers to clear their dues by December 31, 2025. This applies even to cases where the rebate was mistakenly allowed earlier.
The CBDT, in a circular dated September 19, said that in many cases, returns were processed incorrectly. A rebate was given on incomes charged at special tax rates.
These mistakes are now being corrected, and fresh demands are being raised. The circular also warned that delays in payment could attract interest under Section 220(2) of the I-T Act.
To ease taxpayers’ burden, the tax department has offered relief. It will waive the interest if pending taxes are paid before December 31, 2025.
Since July 2024, the Income Tax Department has rejected rebate claims under Section 87A for taxpayers with income under Rs 7 lakh when it included STCG.
For FY 2023-24, these gains were taxed at 15%, but from FY 2024-25, the rate increased to 20%.
The rebate limit for FY 2023-24 was Rs 5 lakh under the old regime and Rs 7 lakh under the new regime. While this helped reduce tax liability to zero, the rebate was not meant for income taxed at special rates like STCG.
The matter reached the Bombay High Court, which in December 2024 asked the I-T Department to allow taxpayers to revise their returns.
A 15-day window in January 2025 was created for revisions. Still, many taxpayers later received notices to pay pending dues.
Finally, the Union Budget 2025 clarified that special-rate incomes, including STCG under Section 111A, will not be eligible for rebate under Section 87A from FY 2025-26 onwards.