The debate over the rebate on short term capital gains (STCG) under section 87A of the Income Tax Act is not ending. At the centre of this debate is the Income Tax Department’s utility software and a judicial decision.
Due to this, lakhs of taxpayers are confused about their next step. Let’s know about this whole matter.
What does the rule say?
The FY25 income tax return (ITR) utility is not allowing taxpayers to claim Section 87A rebate on STCG under Section 111A. However, as per the Bombay High Court directive and Income Tax Appellate Tribunal (ITAT) order, taxpayers are allowed to claim this rebate. The current rule states that if a taxpayer’s total taxable income is up to Rs 5 lakh under the old regime and Rs 7 lakh under the new regime, he is entitled to the full rebate. But, when STCG is added to the taxpayer’s income, the system is blocking this rebate.
Is it right to claim rebate manually?
Tax experts say that one solution to this problem is to claim the rebate by making manual entries in the relevant columns. This method is not new, as tax professionals tried to use this method last year. Himank Singla, partner, SBHS & Associates, said that if someone wants to claim rebate with STCG under section 87A, then he has to manually enter the value in the rebate column. Last year, taxpayers tried to do this. But, the department reversed the rebate. This led to a new tax demand being sent.
Most returns are being filed without rebate
Singla said, “If the client is ready to face the legal process, then we change it manually. Otherwise, 99 per cent of ITRs are being filed as per the utility. In other words, taxpayers have to see that if they want to avail this rebate, then they will have to be ready for intimation order and rebate reversal. After this, they will have to face the legal process.”
This rebate will not be available next year if it is STCG
Some experts say that since the law is in favor of taxpayers, the rebate can be claimed manually. Sujeet Bangar, founder of Taxbuddy.com, said that for the financial year 2024-25, taxpayers can claim it manually under section 87A in case the utility blocks the rebate on short-term capital gains. But, from the financial year 2025-26, this rebate will not be available with STCG.
Ahmedabad ITAT had given permission
In fact, the ITAT of Ahmedabad had allowed taxpayers to claim this rebate while filing income tax returns for FY25. It had said that there is no prohibition on claiming section 87A rebate under section 111A in financial years before financial year 2025-26. It can be claimed despite STCG on transfer of shares.
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