If you faced any trouble in claiming a rebate under Section 87A while filing your income tax return (ITR) this year, you are not alone.
The Bombay High Court recently delivered a ruling which sought to address this issue. It also directed the Central Board of Direct Taxes (CBDT) to extend the e-ITR filing deadline to claim a rebate under Section 87A of the Income Tax Act, 1961.
This ruling follows a case filed by the Chamber of Tax Consultants which challenged the disabling of the rebate function in the updated income tax utility software. The ruling came in favour of an appellant who was denied access to claim a rebate under this section while processing the ITR for the Assessment Year (AY) 2024-25.
What was this case and under what conditions has the High Court extended the ITR filing deadline to claim a rebate under Section 87A? Here’s what you need to know;
Section 87A offers a tax rebate to individual taxpayers whose total income does not exceed Rs 5 lakh under the old tax regime and Rs 7 lakh under the new regime.
Explains CA Ashish Niraj, Partner, A S N & Company, “Initially, the Income Tax Utility for ITR was allowing the rebate. However, on 5th July 2024 Income Tax Department updated the utility which prevented the 87A rebate in cases of Income from Capital Gains, etc. for those opting for the New Regime. As per income Tax Law, there is no bar on 87A rebate from Capital Gain Income but the change of Utility by the Department prevented taxpayers from claiming the rebate.”
The court ruling noted, “From Assessment Year 2024-2025 onwards, an assessee being an individual resident in India whose income is chargeable to tax under the proposed sub-section (1A) of Section 115BAC (new tax regime) shall now be entitled to a rebate of 100 per cent of the amount of income tax payable on a total income not exceeding Rs 7 lakh.”
The software update on July 5, 2024, rendered taxpayers with certain income components, such as capital gains, ineligible to claim the rebate when filing returns under the new regime. As a result, this change left many taxpayers confused and unable to claim their rightful rebate.
What Did The Petitioners Argue?
The petitioners had a simple appeal; the modification which came abruptly lacked any justification and deprived eligible taxpayers of their ‘statutory benefits’.
According to them, this change violated the principles of fairness and transparency expected from the income tax department. The argument was that the rebate under Section 87A is a statutory right and cannot be curtailed by some software modifications.
The plea also noted that rebate functionality had been available before the software update. The sudden change caused procedural hurdles and financial hardships for the taxpayers eligible for rebates under this section.
What Did The Court Say?
The High Court, in its detailed interim order, highlighted that Section 87A provides tax relief to individuals in lower-income brackets. It stated that 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 the part of the tax authorities that limit the ability of taxpayers to avail of this statutory benefit is arbitrary and violative of the rule of law,” it noted.
The Court further emphasised that the rebate under Section 87A is inherently linked to total income and tax liability and must be implemented correctly by the tax authorities.
How Does It Impact You?
The Court has granted interim relief to taxpayers by extending the deadline for filing revised returns from December 31, 2024, to January 15, 2025. This extension will allow eligible taxpayers to claim the Section 87A rebate and seek refunds where it’s applicable.
The Court also directed the Central Board of Direct Taxes (CBDT) to issue a notification under Section 119 of the Income Tax Act, ensuring that the rebate functionality is restored.
For taxpayers, the extension of the filing deadline is an opportunity to rectify returns and claim their rightful benefits under Section 87A. However, the CBDT has yet to release any official order on the extension of the deadline to file rebates under Section 87A.
“High Court is right in allowing the rebate and also extending the date of Revised filing of ITR to 15th January 2025 so that Taxpayers may file revised returns and claim rebate under 87A which they couldn’t claim due to change in utility. With this, they will be entitled to a refund. In light of HC Judgement, the Income Tax Department is expected to bring a Notification soon,” says CA Niraj.
