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The government announced in the Union Budget 2025-26 that income up to Rs 12.75 lakh, with a standard deduction of Rs 75,000, will be tax-free under the new tax regime. However, taxpayers should be aware that short-term capital gains and long-term capital gains tax cannot be included in the total income eligible for a full waiver.
Great news for taxpayers! On August 12, 2025, the Income Tax Appellate Tribunal (ITAT) Ahmedabad bench allowed a taxpayer to claim Section 87A tax rebate on short term capital gains (STCG) under the new tax regime.
CA Abhas Halakhandi posted in X (twitter) a social media platform about the Section 87A Rebate.
The Mumbai bench of Commissioner of Income-tax (Appeals) has decided in the favour of Section 87A tax rebate on special rate incomes. The CIT (A) Mumbai held on February 27, 2025 that Section 87A tax rebate is available on special rate income like Short Term Capital Gains (STCG) and accordingly issued instructions to the assessing officer (AO) to allow it in the case under its consideration.
Many taxpayers are receiving income tax demand notice due to denial of Section 87A tax rebate on special rate income like Short Term Capital Gains (STCG) for ITRs of FY 2023-24 (AY 2024-25). This issue, which was once thought to be resolved after the Bombay High Court judgement on January 24, 2025, is once again back to haunt small taxpayers.
The Bombay High Court has paved the way for eligible taxpayers to claim the rebate under Section 87A of the Income Tax Act, 1961, for the assessment year 2024-25 and beyond. A bench of Justices MS Sonak and Jitendra Jain passed the order while deciding a PIL challenging software changes that restricted such claims on the Income Tax Department’s online filing platform.
Finally good news is there for those taxpayers who are eligible to claim section 87A tax rebate but were prevented from claiming it post July 5, 2024. The Income Tax Department has now updated the excel utilities for ITR Forms 2 and 3 to exercise the option to update tax rebate under section 87A for FY 2023-24 (AY 2024-25). The department also said the HTML utilities will be made available shortly. This information was mentioned by the Income Tax Department in the late hours of yesterday.
The Income Tax Department updated the income tax return forms for ITR-2 and ITR-3 on January 4, 2025. The ITR forms have been updated to allow the taxpayers to claim Section 87A tax rebate on short-term capital gains on equity, which they were denied during the July ITR filing. However, despite the income tax e-filing accepting the claim, the income tax department is rejecting the Section 87A rebate. This rejection is happening at the time of processing the ITR because the software linked for processing the ITR forms has not been updated. Under section 87A eligible taxpayers can claim up to Rs 25,000 tax rebate under the new tax regime. Under the old tax regime up to Rs 12,500 tax rebate can be claimed by eligible taxpayers under section 87A.
Tax rebate under section 87A of the Income-tax Act, 1961 is a benefit that reduces the total income tax liability of an eligible taxpayer. The eligibility criteria are that the taxpayer’s income should be below a set threshold and not having certain types of income.
If you filed your ITR by the deadline, you might be waiting for it to be processed. However, there is a chance it won’t be processed according to your calculations. Also do keep in mind that if you missed the filing deadline, you could only file under the new tax regime.