Section 87A Rebate Restored via ITR Utility update
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Section 87A Rebate Restored- utility update disallowed rebate on Special Rate Income
The Income Tax Department’s announcement about the updated utilities for ITR-2 and ITR-3 incorporating Section 87A rebate provisions is a notable development, especially for taxpayers dealing with income taxed at special rates such as Short-Term Capital Gains u/s 111A and Long-term capital gains u/s 112.
ITR-2 & ITR-3 3 (Excel-based Utility) has been updated. However, JSON schema has still not been updated after 05.07.2024. Here are the key takeaways of Circular No. 21 (dated December 31, 2024):
- Revised Utilities for ITR-2 and ITR-3: The revised utilities are expected to simplify claiming the Section 87A rebate. These updates follow Circular No. 21 (dated December 31, 2024) and align with the Bombay High Court’s directive ensuring taxpayer rights.
- The updated utilities for ITR-2 and ITR-3 now enable taxpayers to claim Section 87A rebate on special rate income, addressing the issue caused by the earlier disallowance on July 5, 2024. The July 5, 2024, utility update had disallowed the rebate on special rate income, causing compliance challenges for eligible taxpayers. This update rectifies that issue. The updated utilities for ITR forms 2 and 3 giving effect to the Circular No. 21 dated 31/12/24 & including the option to update 87A rebate will be made available shortly.
- Revised and Belated Returns: Taxpayers can file or revise their returns using the updated utilities, benefiting from the extended deadline of January 15, 2025, as per Circular No. 21.
- Rebate under Section 87A: Available to taxpayers earning up to Rs. 5,00,000 taxable income (old regime) or Rs. 7,00,000 (new regime). Enables eligible individuals to reduce their tax liability to zero.
- Special Rates on Income: Provisions address Short-Term Capital Gains (Section 111A) and Long-term capital gains (Section 112), ensuring rebates can be claimed even for income taxed at these rates.
- Filing Extensions and Practical Benefits: Circular No. 21 extends the deadline for revised or belated returns to January 15, 2025, providing relief for taxpayers affected by processing delays. Income tax taxpayers with previously processed Income tax return’s showing demand must file revised returns to claim the benefits.
Big Update on Tax Rebate u/s 87A
The Income Tax Department had changed Excel Utility to Update the Rebate u/s 87A but it doesn’t means Department had allowed Rebate u/s 87A and that’s why the wording in the income tax portal were “The updated utilities for ITR Forms 2 and 3 to exercise the option to update 87A rebate for AY 2024-25 will be made available shortly.”
Pic 1
The Utility is calculating tax without giving rebate against special income as earlier but the tax payer can edit the rebate manually
Pic 2
Edited the Rebate amount manually to the extent of tax
Pic 3
Screenshot of earlier utility where rebate amount was non editable
Rebate u/s 87A for Short-Term Capital Gains (STCG) u/s 111A
Important distinction between the Old and New Tax Regimes in relation to
- Section 111A – Short-Term Capital Gains (STCG) on Equity: Applies to STCG on equity shares and equity-oriented mutual funds where STT is paid. & Section 87A: Provides a rebate of up to INR 12,500 for resident individuals if the total income is up to INR 5 lakh. Applies to short-term capital gains on equity shares or equity mutual funds where STT (Securities Transaction Tax) has been paid. Tax rate: 15%
- Section 87A – Rebate: Available to a resident individual whose total income does not exceed INR 5,00,000. Maximum rebate allowed: INR 12,500 & Rebate is against the total tax liability (excluding certain income types under new regime).
Rebate u/s 87A on STCG u/s 111A:
| Tax Regime | Rebate on STCG u/s 111A? | Remarks |
|---|---|---|
| Old Tax Regime | Available | Rebate under 87A is allowed even if the income includes STCG taxable @15%. |
| New Tax Regime | Not Available | STCG under 111A taxed separately @15%. Rebate not allowed on this component. |
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Under the Old Regime, even if the income includes STCG under section 111A, rebate under 87A is available (subject to conditions).
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Under the New Regime, rebate under 87A is available, but not against tax on STCG u/s 111A, because the preferential 15% tax rate applies separately, and the regime does not allow offsetting or rebate on that portion.
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