Last opportunity for eligible taxpayers to claim 87A tax rebate: Why you must file revised/belated ITR before January 15, 2025
The section 87A tax rebate issue is of special interest and debate among taxpayers. The issue became so contentious that multiple court cases were filed against the tax department’s decision to deny eligible taxpayers the benefit of 87A tax rebate. The tax department seems to have taken a stance that if special rate incomes like short term capital gains income exists in the ITR then that ITR cannot claim 87A tax rebate. This stance however was not properly communicated to taxpayers and changes were made to the ITR processing software suddenly on July 5, 2024, which is what caused the whole 87A tax rebate mess.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Missing the January 15, 2025 revised ITR filing deadline can mean losing out tax refund in 87A cases
Only those eligible taxpayers who had to pay extra income tax due to denial of 87A tax rebate will now get a tax refund if they file a revised ITR on or before January 15, 2025.The Central Board of Direct Taxes (CBDT) extended the revised and belated ITR filing deadline to January 15, 2025 from December 31, 2024. Missing this deadline can mean you lose the opportunity to claim 87A tax rebate. This is because after January 15, 2025 only ITR-U can be filed which does not permit tax refunds. ITR-U (updated ITR) is used to disclose previously undisclosed incomes, etc by paying a penal tax amount of 25% or 50%.
Chartered Accountant Suresh Surana explains the brief background of the 87A tax rebate issue: “Despite the provision under law allowing the 87A tax rebate for individuals with taxable incomes below the prescribed threshold, the utility was designed to block such claims automatically. This unilateral design, implemented without due notification or consultation, led to an unjust increase in tax liabilities for affected taxpayers, causing widespread financial and procedural hardship.”
The question is whether taxpayers who file a revised ITR now, can get a tax refund now due to excess tax paid as a result of denial of 87A tax rebate. Section 87A tax rebate can be claimed if a taxpayer's income is up to Rs 5 lakh (old tax regime) or up to Rs 7 lakh (new tax regime)
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ITR utilities updated to accommodate section 87A update in the ITR; Will this result in tax refund?
The Income Tax Department on December 31, 2024 announced that the utility software for ITR-2 and 3 (the only ITRs where capital gains income can be offered for tax) will soon be updated. As of January 3, 2025 the utilities have been updated. This means taxpayers can now file a revised or belated ITR to claim section 87A tax rebate, provided they are eligible.Now three broad questions revolve around this 87A rebate case.We have asked various experts these questions and here’s what they said:
Q1. Taxpayer has filed ITR post July 5, 2024 and rebate could not be claimed in the return. Consequently, the taxpayer ended up paying a higher amount of tax. Can they file a revised return now to claim the rebate amount and get a refund of the excess taxes paid?
S. Sriram, Partner, Lakshmikumaran & Sridharan, says: “Yes, though technically, the CPC itself when processing the return should grant the refund. It is better for the taxpayer to file a revised return and compute the correct tax liability. The deadline has been extended for all taxpayers, without limiting it to a claim of 87A alone.”
Surana says: “Taxpayers eligible for refund would include those individual taxpayers who filed returns before July 5, 2024, and received demand notices disallowing the 87A tax rebate as well as those who filed returns after July 5, 2024, and paid additional tax due to the 87A tax rebate claim being rejected, and those who made procedural errors or omissions in their original filings may also claim refund by way of furnishing a revised return or belated return, as the case may be. Filing a revised or belated return now would allow all such taxpayers to correct discrepancies, claim the rebate, and receive a refund if excess tax was paid.”
Kinjal Bhuta, Secretary, Bombay Chartered Accountants' Society (BCAS), says, "The tax payer needs to claim section 87A Rebate by filing a revised return before the extended due date of 15th January 2025. Pursuant to filing the revised return, the tax payer will be eligible to get a tax refund for the excess tax paid in the original return."
Q2. Taxpayer has filed a return prior to July 5, 2024 and claimed the rebate. However, while processing the return, the claim of rebate was disallowed and consequently intimation notice under section 143(1) was sent to the taxpayer with a tax demand. Can the taxpayer file a revised return against the tax demand?
S. Sriram says: Yes, the taxpayer can either file a revised return or move a rectification application to correct the error and seek a refund.
Chartered Accountant Prakash Hegde says: “A taxpayer who was denied 87A tax rebate claim post July 5, 2024 can now file a revised ITR to claim 87A tax rebate and get a tax refund. Moreover, taxpayers who filed ITR with a 87A rebate claim but were later sent a tax demand notice denying the claim for 87A tax rebate can now file a revised ITR to claim it if they satisfy the conditions for claiming 87A tax rebate. In my opinion the tax department should understand why a taxpayer is claiming increased tax refund or lowering their tax liability by filing a revised ITR and not put it for further scrutiny in 87A rebate cases.”
Q3. Taxpayers who had not claimed 87A tax rebate despite being eligible for claiming it. Should the taxpayer now file a revised ITR and claim a tax refund?
Chartered Accountant Hardik Kakadia, president, Chartered Accountants Association Surat (CAAS) says: “Generally all those who had claimed rebate under section 87A and had their ITR processed with demand, may revise the same and can claim benefit. Those who had accepted the stand of the tax department on non-availability of 87A rebate and did not claim, may also claim now by revising the ITR.”
ITR filing deadline extension: Bombay HC orders tax dept to allow these taxpayers claiming 87A rebate to file ITR till January 15, 2025
Filing revised ITR with tax refund can result in higher scrutiny by the tax department?
Kakdia says: “It is a general but ill-founded perception amongst taxpayers that any upward revision is acceptable, but a downward revision of taxes is viewed negatively by the tax department resulting into case being selected under scrutiny assessment under section 143(2), and with such an erroneous belief some assessees may prefer not to revise the return.However, the circular is silent on the above revision benefits but the conduct of the tax department with respect to present context of Bombay High Court judgement on Section 87A vis-a-vis message flashing on ITD portal about update on 87A can be construed to give benefit to the taxpayers.”
Chartered Accountant Ashish Karundia, says: “Technically speaking if a taxpayer has claimed 87A tax rebate in the ROI and was served with a tax demand notice denying the claim for 87A tax rebate, then that taxpayer should file a revised ITR now to claim 87A tax rebate and get the demand reduced to Nil, if the demand is not yet paid. However, practically whether the department will automatically remove such demands on the tax portal or the taxpayer is required to file a revised ITR or a rectification application is difficult to say at this point in time. So, we need to wait for the tax department to come out with procedural guidelines on how to handle such 87A tax rebate claims cases.”
ITR Filing Deadline: Income Tax Department extends belated, revised ITR filing deadline to January 15, 2025 for these taxpayers
Advocate Ashish Parashar, Delhi High Court says, "In my view, the assessee eligible to claim rebate under the provisions of section 87A will get the refund due (if any) after the grant of rebate which was earlier disallowed from 05/07/2024. This will fall in line with the observations made by Hon'ble Bom HC which expressly states in Para - 15 of the order dated 20/12/2024 that the responsibility lies with the tax authorities to ensure proper implementation of the rebate, as long as the taxpayer fulfills the statutory criteria. Procedural changes, such as those in utility software or instructions issued by the tax department, cannot override the substantive right to the rebate. Any action or inaction on part of the tax authorities that limits the ability of taxpayers to avail of this statutory benefit is arbitrary and violative of the rule of law. Hence, as an interim relief the same position as before 05/07/2024 will remain effective. Here, an important aspect to be taken into consideration is whether there will be interest available on such refund and what will be considered as the actual date of payment, for which there still exists an ambiguity from the Department."
Manmeet Kaur, Partner at Karanjawala & Co. says: "The CBDT vide its notification on 31.12.2024 has extended the time period for filing revised returns for resident individuals from 31.12.2024 to 15.01.2024 in terms of the directions of the Hon’ble Bombay High Court issued on 10.12.2024 in a PIL filed by an association of Tax Consultants.
The Hon’ble Bombay High Court considered that pursuant to the change in the utility software, the assessees were not able to claim rebate under Section 87A of the Income Tax Act for income taxable at special rates under the new regime. Therefore, until the case is finally decided, the assessees have been given an opportunity to file revised returns with claims for rebate and accordingly, avail refunds. Subject to the final outcome of the case before Hon’ble Bombay High Court, the assesses shall be able to claim/file refund of the excess tax paid by them in terms of their original return. Resident individual taxpayers will get a tax refund now by filing a revised or belated ITR under the extended deadline."
Bhuta from BCAS says: "The Hon’ble Bombay High Court had directed CBDT to issue a requisite notification u/s 119 of the Act for extending the due date for filing of revised return for those assessees who could not claim the rebate under section 87A due to technical default in the Income Tax Return Utility. It is clear that this Circular is pursuant to the HC ruling. The Circular though makes no specific mention to the decision or particular class of taxpayers therefore even those tax-payers not impacted by Rebate under section 87A, can avail the benefit of this extension. All the resident individuals can file their revised / belated returns by 15th January 2025."
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This story originally appeared on: India Times - Author:Faqs of Insurances
