Tax rebate denied in July 2024? Revise your return by Jan 15 to claim the same

Income tax return: Revise your returns by January 15 to claim tax rebate under section 87A that you may have been denied in July 2024

There is good news  for taxpayers who, in July 2024, had to forgo the income tax rebate that they were eligible for under section 87 A of the Income Tax (I-T) Act.

The I-T department has announced that it will update the tax return-filing `utilities' for ITR 2 and 3, “shortly.” This will allow eligible taxpayers to claim the benefit that they were denied earlier.

Under the old, with-exemptions regime, taxpayers earning up to Rs 5 lakh are entitled to a rebate of up to Rs 12,500. Those who choose the new, minimal exemptions regime are eligible for a rebate of up to Rs 25,000.

Rebate denial 

Many taxpayers who had ‘special rate’ incomes, such as short-term capital gains (STCG) tax @15 percent (for financial year 2023-24), were denied the rebate on this portion of their income while filing their returns last July.

For example, say, taxpayer A had a salary income of Rs 5 lakh and STCG of Rs 2 lakh on sale of shares in FY 2023-24, and filed her return on July 30. She's qualified for a tax rebate under section 87 A under the new tax regime. Had she filed her return before July 5, 2024, when the software utility was updated, she would have been allowed the rebate. However, post July 5, the updated ITR utility declined the rebate on STCG, restricting the benefit to the salary portion of the total income.

Also read: No tax rebate for those who have short-term capital gains, says income-tax portal

Despite representations from chartered accountants, income taxpayers, and the Institute of Chartered Accountants of India (ICAI), the tax department had not reconsidered their decision.

However, on December 20, the Bombay High Court passed an interim order directing the I-T department to extend the deadline for filing belated / revised returns by 15 days so that affected taxpayers can claim the rebate. Subsequently, the deadline was pushed to January 15, and now the I-T department has announced that it will update the utilities for ITR 2 and 3 soon.

Way ahead 

Taxpayers who were denied  the rebate now have an opportunity to claim the same. Some tax experts Moneycontrol spoke to said that ideally, the I-T department ought to have taken suo motu action since it possesses the data, and can easily identify  taxpayers who were denied the rebate in July.

However, tax officials have chosen not to do so. “This won’t be automatic. Though the I-T department has all the data, those who want the rebate will have to revise their returns by January 15. But some taxpayers will need to be watchful. For example, those  with a salary income of, say, Rs 7 lakh and STCG of Rs 2 lakh, got the rebate despite earning more than the rebate limit,” says Mayank Mohanka, Founder-Director, TaxAaraam.com

Even if your return has been processed and you have received a refund or paid any additional tax that may have been demanded, you can revise your return by January 15. “The I-T department updating the utilities indicates that they will provide the benefit to  taxpayers who were wrongly denied the rebate. So, they can now revise their ITR and claim a refund,” says Abhishek Soni, CEO and Co-founder, TaxWin, a tax consultancy and return-filing portal.

Implications for other taxpayers

There is another point that all taxpayers, and not only those wrongly denied the rebate, need to bear in mind. The deadline for filing belated or revised returns for a financial year is 31st December of the subsequent year (assessment year). While the tax department has extended the deadline this time round, it remains to be seen if the updated utilities come with any caveats.

“Though the Bombay HC had directed that the due date be extended only with respect to relief under section 87A, the circular extends the due date for all resident taxpayers without any specific mention of this relief. As ITR 2 and 3 will be released soon, one will need to see if these forms have any conditions for those with incomes above Rs 5 lakh (old tax regime) or Rs 7 lakh (under new tax regime),” points out Kuldip Kumar, Partner, Mainstay Tax Advisors.