ITR filing: The Income Tax Department has provided a significant update by allowing taxpayers who qualify for the section 87A tax rebate for the financial year 2023-24 to claim it now. In a notification issued on December 31, 2024, the tax department stated that eligible taxpayers will soon be able to submit a revised or belated income tax return to benefit from the section 87A tax rebate.
This option can be accessed through either the ITR filing utility or the e-filing portal online. This decision comes as a response to a ruling by the Bombay High Court instructing the tax department to extend the deadline for eligible taxpayers to claim the 87A tax rebate through revised or belated ITR filings.
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“The updated utilities for ITR forms 2 and 3 giving effect to the Circular No. 21 dated 31st December 2024 and including the option to update 87A rebate will be made available shortly,” said the Income Tax Department on the e-filing ITR portal on December 31, 2024.
Taxpayers should note that these changes will only be implemented on the back end for the ITR-2 and ITR-3 forms.
This adjustment is necessary due to the ITR e-filing utility restricting 87A tax rebate claims against special rate incomes such as Short Term Capital Gains (STCG) for individuals since July 5, 2024.
Chartered Accountants have noted that taxpayers who filed their ITR through the e-filing portal after this date and claimed a tax rebate with special rate incomes have received tax notices subsequently. It is important to note that ITR-2 and ITR-3 are the only forms affected by this update.
Background
The Income Tax Department provides a rebate to individual taxpayers under Section 87A if their income does not exceed a specified threshold. The limit for this rebate is Rs 7 lakh under the new tax regime and Rs 5 lakh under the old regime. If your income falls within these thresholds, your tax liability will be reduced to zero.
As per the Finance Act 2019, the tax rebate threshold under section 87A was increased to Rs 12,500 for individuals earning Rs 5 lakh or less in the old tax regime. In the new tax regime, the tax rebate amount is now Rs 25,000 for those earning Rs 7 lakh or less.
From July 5, 2024, the rebate under section 87A does not apply to certain special rate incomes when filing income tax returns (ITR). This includes short-term capital gains on equity shares or equity-oriented mutual funds taxed at 15% under Section 111A.
Resident individuals exclusively avail the privilege of an extended deadline for submitting revised or belated ITR.
I-T department’s action
CA Ashish Niraj, partner, A S N & company, told the Economic Times: “This news flash from the tax department means now eligible taxpayers can claim 87A tax rebate through filing a revised or belated ITR through the utility or online web based ITR filing facility (e-filing portal) soon. To give effect to this change the utility software of the specific forms where capital gains taxation income can be offered (ITR-2 and 3) will be updated.”
Bombay HC’s directive
The recent updates to the utility software of the Income Tax Department, as highlighted by the Bombay High Court, have created obstacles for eligible taxpayers who wish to avail of the Section 87A rebate. This rebate allows individuals with taxable incomes up to Rs 7 lakh to reduce their tax liability to zero.
The bench, led by Chief Justice Devendra Kumar Upadhyaya and Justice Amit Borkar, observed that the software changes implemented on July 5, 2024, have prevented certain taxpayers from accessing the rebate. The judges stressed that these procedural adjustments contradict the intended purpose of the rebate and unfairly burden taxpayers.
Last month, the Bombay High Court asked the Central Board of Direct Taxes (CBDT) to release a notification extending the deadline for revised and belated Income Tax Return (ITR) filings until January 15, 2025, specifically for taxpayers eligible for claiming the section 87A tax rebate.
This action follows a Public Interest Litigation (PIL) filed by The Chamber of Tax Consultants. It should be noted that this extension is temporary, with the final decision scheduled to be announced on January 9, 2025.