Claimed Section 87A rebate in ITR you may get the tax demand notices

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FAQ on Section 87A – Rebate of Income Tax for Individuals

1. What is Section 87A of the Income Tax Act?
Section 87A provides a rebate to individual taxpayers, allowing them to reduce their tax liability if their total income does not exceed certain thresholds. This provision is specifically designed for resident individuals in India.

2. What is the income threshold to claim the rebate under Section 87A?
For the old tax regime, if your total income does not exceed ₹5 lakh, you are eligible for a rebate.
Under the new tax regime, this threshold increases to ₹7 lakh, as per the amendments made by the Finance Act, 2023.

3. What is the maximum rebate allowed under Section 87A?
The maximum rebate under Section 87A is ₹12,500 under the old tax regime. Under the new tax regime, if your total income is below ₹7 lakh, the rebate can go up to ₹25,000.

4. Is the rebate applicable to all taxpayers?
No, only resident individuals in India are eligible for this rebate. Non-resident taxpayers cannot claim it.

5. Can I claim the Section 87A rebate on Short-Term Capital Gains (STCG)?
While Section 87A does not explicitly disallow rebates on STCG, changes in the tax filing utility after July 5, 2024, have led to the denial of rebates on STCG. This update has resulted in many taxpayers receiving tax demand notices for previously claimed rebates on STCG.
6. What happens if my income exceeds the ₹5 lakh or ₹7 lakh thresholds?
If your income exceeds ₹5 lakh (old regime) or ₹7 lakh (new regime), you will not be eligible for the rebate. However, for the new regime, if your income slightly exceeds ₹7 lakh, the rebate can be reduced by the excess income.

7. Why have I received a tax demand notice for claiming a Section 87A rebate on STCG?
Due to updates in the tax filing utility post-July 2024, rebates are no longer allowed on special rate incomes like STCG. Taxpayers who claimed such rebates in earlier returns are now receiving demand notices.

8. What can I do if I received a tax notice for claiming the 87A rebate?
You have the option to pay the tax demand or file a rectification request under Section 154 of the Income Tax Act. You may also appeal the tax notice depending on the time and costs involved.

9. Is Section 87A rebate applicable on Long-Term Capital Gains (LTCG)?
No, the rebate is explicitly not available for income from Long-Term Capital Gains (LTCG) under Section 112A.

10. What are the recent changes to Section 87A introduced by the Finance Act, 2023?
The Finance Act, 2023, increased the income threshold for the new tax regime to ₹7 lakh and allowed a rebate of up to ₹25,000 for individuals whose income is below this limit.

This FAQ provides clarity on the key aspects of Section 87A, especially considering the recent changes and issues around claiming rebates on STCG.