Bombay High Court Allows 87A Tax Rebate on Special Rate Income, Orders Fix for ITR Utility
By: Admin
January 29, 2025
Categories: Income Tax News | News
4 Min Read
Bombay High Court Ruling on Section 87A Rebate
In a landmark judgment on January 24, 2025, the Bombay High Court ruled against the Income Tax Department for modifying the ITR utility software to deny the Section 87A tax rebate on special rate incomes. The court ordered the department to fix the utility and allow eligible taxpayers to claim the rebate.
Key Takeaways from the Judgment
- Taxpayers with taxable income up to ₹5 lakh (old regime) or ₹7 lakh (new regime) qualify for a rebate under Section 87A, reducing their tax liability to zero.
- The court found that preventing taxpayers from claiming the rebate via the ITR utility violated constitutional rights. It directed the IT Department to restore the claim feature.
- If the department disputes a claim, it must handle the issue under scrutiny assessment (Sections 143(1) & 143(3)) instead of blocking it in the utility.
Government’s Argument Against the 87A Rebate
The Additional Solicitor General of India (ASG) argued that:
- Total income falls into two categories under Section 115BAC(1A) and Chapter 12.
- Chapter 12 incomes (Sections 110-115BBJ), such as short-term capital gains (STCG), are taxed at special rates and should not qualify for the Section 87A rebate.
- The rebate should apply only to regular income under Section 115BAC(1A), excluding special rate incomes.
High Court’s Rejection of the Government’s Argument
The Bombay High Court dismissed these claims, ruling that:
- The law does not explicitly deny the 87A rebate on special rate incomes, making it a debatable issue.
- Blocking claims through the ITR utility is unconstitutional. Disputes should go through judicial processes rather than administrative restrictions.
- The tax department must challenge disputed claims through assessment and appeals instead of preventing taxpayers from filing them.
Impact on Taxpayers
- You can claim the 87A rebate even if you have special rate income.
- The IT Department cannot deny rebate claims outright via the ITR utility.
- Claims may still face scrutiny and litigation, as the tax department retains the right to challenge them under Section 143.
This ruling safeguards taxpayer rights while ensuring the IT Department can assess disputed claims through proper legal channels.
