New Delhi, Sep 23 The Central Board of Direct Taxes (CBDT) has once again clarified that taxpayers cannot claim tax rebate under Section 87A on income that is taxed at special rates, such as short-term capital gains (STCG).
In financial year 2023-24, many taxpayers claimed rebate on short-term capital gains, but the Income Tax department denied their requests and raised demands for the pending taxes.
The department has now asked such taxpayers to clear their dues by December 31, 2025. This applies even to those cases where the rebate was mistakenly given earlier.
CBDT, in its circular dated September 19, said that in several cases, returns were processed incorrectly, and rebate was allowed on incomes chargeable to special tax rates.
These mistakes are now being corrected, and fresh demands are being raised. The circular also warned that any delay in payments could attract interest under Section 220(2) of the I-T Act.
However, to reduce hardship for taxpayers, the tax department has offered relief. It has decided to waive the interest if the pending taxes are paid before December 31, 2025.
Since July 2024, the income tax department has been rejecting rebate claims under Section 87A for taxpayers with income under Rs 7 lakh when it included short-term capital gains.
For FY 2023-24, these gains were taxed at 15 per cent, but from FY 2024-25, the rate has been increased to 20 per cent.
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 provision helped reduce tax liability to zero, the rebate was not meant to cover income taxed at special rates like STCG.
The issue had 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 such revisions, but later many taxpayers still received notices to pay their pending dues.
Finally, the Union Budget 2025 cleared all confusion by stating that special-rate incomes, including STCG under Section 111A, will not be eligible for rebate under Section 87A from FY 2025-26 onwards.
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