Good News for Taxpayers: Claim Section 87A Tax Rebate for FY 2023-24 with Revised ITR Filing

Introduction

In a significant relief for taxpayers, the Income Tax Department has announced updates enabling eligible individuals to claim the Section 87A tax rebate for FY 2023-24. This move comes after an interim order by the Bombay High Court directing the extension of the revised and belated ITR filing deadlines.

What Is Section 87A Tax Rebate?

Section 87A of the Income Tax Act, 1961, provides eligible taxpayers a tax rebate:

• Old Tax Regime: Up to ₹12,500.
• New Tax Regime: Up to ₹25,000.

This rebate effectively reduces the tax liability to zero for incomes below a specified threshold (₹5 lakh under the old regime and ₹7 lakh under the new regime).

The Issue: Denial of 87A Tax Rebate for Certain Incomes

From July 5, 2024, the Income Tax Return (ITR) filing utilities on the e-filing portal prevented taxpayers from claiming the 87A rebate for incomes taxed at special rates, such as:

• Short-term capital gains on equity shares (taxed at 15%).
• Dividends and other income taxed under specific provisions.

As a result, many taxpayers received tax notices for claiming the rebate on these incomes, prompting widespread concern and legal action.

Bombay High Court Intervention

The Bombay High Court, in response to a Public Interest Litigation (PIL), issued an interim order directing the Income Tax Department to:

1. Extend the revised and belated ITR filing deadlines for resident individuals.
2. Update the utility software to allow eligible taxpayers to claim the rebate.

The final judgment on the matter is reserved until January 9, 2025. However, the interim relief ensures procedural fairness and alignment with legislative intent.

Key Updates from the Income Tax Department

1. Extended Deadline for Revised/Belated ITR Filing

• New Deadline: January 15, 2025.
• Applicable To: Resident individuals filing ITR-2 or ITR-3.

2. Updated ITR Forms and Filing Utilities

• The ITR-2 and ITR-3 forms will be updated to reflect changes allowing the Section 87A rebate for incomes taxed at special rates.
• Circular No. 21/2024 clarifies that the changes will be implemented in the utility software shortly.

3. Eligibility

• Only resident individuals can benefit from the extended deadline and updated utilities.
• Non-residents, HUFs, trusts, and other taxpayers must file updated returns (ITR-U) if required.

Expert Opinions

On Procedural Relief

“The Income Tax Department’s move aligns with the principles outlined in the Bombay High Court’s judgment, ensuring taxpayers can exercise their statutory rights without undue procedural impediments,” said a tax expert.

On Utility Updates

“Updating the ITR forms to incorporate the Section 87A rebate is a welcome step. It reflects a commitment to rectifying errors that could have otherwise resulted in undue tax burdens,” noted another expert.

Steps to Claim the Section 87A Tax Rebate

1. Check Eligibility:
   • Ensure your total income does not exceed ₹5 lakh (old regime) or ₹7 lakh (new regime).
2. Use Updated ITR Forms:
   • Download the revised utilities for ITR-2 or ITR-3 once available on the e-filing portal.
3. File a Revised/Belated Return:
   • Submit your revised or belated ITR by the new deadline: January 15, 2025.
4. Double-Check for Accuracy:
   • Verify that the rebate claim aligns with the updated provisions.

Implications for Taxpayers

The updates ensure that eligible taxpayers can claim their rightful benefits without facing legal or procedural hurdles. However, it is crucial to:

• File returns accurately within the extended timeline.
• Stay informed about further updates from the Income Tax Department.

Conclusion

The extension of the revised and belated ITR filing deadline and the introduction of updated utilities for Section 87A rebate claims signify a positive step toward taxpayer-friendly reforms. Eligible taxpayers should utilize this opportunity to rectify any discrepancies and claim their rightful benefits before the January 15, 2025 deadline.