CBDT Clarifies: No Section 87A Tax Rebate on Short-Term Capital Gains, Dues Must Be Cleared by December
CBDT warns taxpayers to clear STCG dues by December; Section 87A rebate not applicable on special-rate incomes
New Delhi, Sept 24: The Central Board of Direct Taxes (CBDT) has reiterated that taxpayers cannot claim a rebate under Section 87A of the Income Tax Act on income taxed at special rates, including short-term capital gains (STCG). Taxpayers who claimed such rebates for the financial year 2023-24 have been asked to clear their dues by December 31, 2025.
The clarification comes after several cases were identified where tax returns were processed incorrectly, allowing rebates on income liable to special tax rates. The CBDT, in a circular dated September 19, stated that fresh demands are being raised and warned that delays could attract interest under Section 220(2) of the I-T Act. However, to ease the burden, interest will be waived if dues are paid before the December deadline.
Short-term capital gains for FY 2023-24 were taxed at 15%, which has been increased to 20% from FY 2024-25. The rebate limit under Section 87A was Rs 5 lakh under the old regime and Rs 7 lakh under the new regime, but this rebate was never intended to cover income taxed at special rates such as STCG.
The issue reached the Bombay High Court in December 2024, which allowed taxpayers to revise their returns. A 15-day window for revisions was provided in January 2025, but many taxpayers still received notices for pending dues. The Union Budget 2025 further clarified that from FY 2025-26 onwards, income taxed at special rates, including STCG under Section 111A, will not qualify for Section 87A rebate.
