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Thank you for reading this post, don't forget to subscribe!CBDT Waives Interest on Tax Demands for Section 87A Rebate on Capital Gains
The Central Board of Direct Taxes (CBDT) has offered a reprieve to taxpayers who incorrectly claimed the Section 87A rebate on capital gains. By paying the resulting tax demand by December 31, 2025, you can avoid paying any penal interest.
The Issue: Rebate on Special-Rate Income
The core of the problem lies in the misapplication of the Section 87A rebate, which is applicable under the new tax regime for individuals with a total taxable income of up to ₹7 lakh. There was confusion over whether this rebate could be claimed on incomes taxed at special rates, such as:
- Long-Term Capital Gains (LTCG) from the sale of equity mutual funds and shares.
- Short-Term Capital Gains (STCG) from the same.
Many taxpayers claimed this rebate on their special-rate income, and some of their returns were initially processed and accepted. However, the Income Tax Department’s stance, now clarified by the CBDT, is that the rebate only applies to normal income, not special-rate income.
After the tax department’s ITR filing utilities were updated to block such claims, it began issuing tax demand notices to those who had previously received the incorrect rebate.
CBDT’s Stand and Relief
According to the CBDT circular, special-rate incomes are taxed separately and are not considered part of the slab-based calculation under the new tax regime. Since the Section 87A rebate is tied to the slab-based tax calculation, it cannot be claimed on special-rate income.
To ease the hardship faced by taxpayers, the CBDT, in a circular issued under its powers under Section 119 of the Income Tax Act, has directed a waiver of interest on these demands. The interest will be waived if the tax demand is paid on or before December 31, 2025.
If a taxpayer fails to meet this deadline, interest will be charged from the day after the initial payment period specified in the demand notice.
