ITR Filing Update: The Income Tax Department has announced that taxpayers eligible for the Section 87A tax rebate for the financial year 2023-24 can now claim it. In a notification dated December 31, 2024, the department stated that eligible individuals will soon be able to file revised or belated income tax returns to avail of the rebate.
Taxpayers can access this option through the ITR filing utility or the e-filing portal online. This move follows a Bombay High Court directive requiring the tax department to extend the deadline for eligible taxpayers to claim the Section 87A tax rebate via revised or belated ITR filings.
In a notification on December 31, 2024, the Income Tax Department announced, ‘The updated utilities for ITR forms 2 and 3, reflecting the changes in Circular No. 21 dated December 31, 2024, and enabling the Section 87A rebate claim, will be made available shortly.’
Taxpayers should note that these updates will only apply to the backend processing of ITR-2 and ITR-3 forms. This adjustment addresses restrictions in the ITR e-filing utility since July 5, 2024, which had prevented Section 87A rebate claims on special rate incomes, such as Short Term Capital Gains (STCG).
Chartered Accountants have observed that taxpayers who filed their ITR through the e-filing portal after the specified date and claimed a tax rebate on special rate incomes have received tax notices. Notably, this update impacts only ITR-2 and ITR-3 forms.
Background
The Income Tax Department offers a rebate under Section 87A to individual taxpayers whose income does not exceed specified thresholds. Under the new tax regime, this threshold is ₹7 lakh, while under the old regime, it is ₹5 lakh. Taxpayers within these limits can reduce their tax liability to zero.
As per the Finance Act 2019, the rebate threshold under Section 87A in the old tax regime was increased to ₹12,500 for individuals earning up to ₹5 lakh. In the new tax regime, the rebate amount was further raised to ₹25,000 for individuals earning up to ₹7 lakh.
Effective July 5, 2024, the Section 87A rebate is no longer applicable to certain special rate incomes when filing Income Tax Returns (ITR).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, which are taxed at 15% under Section 111A.
Only resident individuals are eligible for the extended deadline to submit revised or belated ITRs.
Income Tax Department’s Action
CA Ashish Niraj, partner at A S N & Company, explained to The Economic Times: “This update from the tax department enables eligible taxpayers to claim the Section 87A tax rebate by filing a revised or belated ITR using the utility software or the online e-filing portal. To facilitate this change, the utility software for specific forms dealing with capital gains taxation, namely ITR-2 and ITR-3, will be updated accordingly.
Bombay High Court’s Directive
The Bombay High Court has highlighted challenges arising from recent updates to the Income Tax Department’s utility software, which have hindered eligible taxpayers from availing themselves of the Section 87A rebate. This rebate allows individuals with taxable incomes of up to ₹7 lakh to reduce their tax liability to zero.
The bench, led by Chief Justice Devendra Kumar Upadhyaya and Justice Amit Borkar, noted that the software changes implemented on July 5, 2024, have restricted access to the rebate for certain taxpayers. The judges emphasized that these procedural barriers conflict with the rebate’s intended purpose and place an undue burden on taxpayers.
In response, the Bombay High Court directed the Central Board of Direct Taxes (CBDT) to issue a notification extending the deadline for revised and belated Income Tax Return (ITR) filings to January 15, 2025, specifically for taxpayers eligible to claim the Section 87A rebate.
This action follows a Public Interest Litigation (PIL) filed by The Chamber of Tax Consultants. However, this extension is provisional, with the court’s final decision expected on January 9, 2025.
Source: Business Today
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