Income Tax Notices Over Section 87A Rebate Claims on Capital Gains – Are You Affected?

What’s Happening?

The Income Tax Department has started issuing notices to taxpayers who incorrectly claimed the ₹12,500 rebate under Section 87A on capital gains. Many individuals mistakenly believed that capital gains income qualifies for the rebate, but as per tax laws, this is not the case. The department is now flagging such cases and initiating reassessments.

Who is at Risk?

If you fall into any of the following categories, you may receive a notice from the Income Tax Department:

• Taxpayers whose total income exceeds ₹5 lakh (before deductions).

• Individuals who included capital gains under the Section 87A rebate claim.

• Filers who misunderstood the tax benefit on long-term capital gains (LTCG) or short-term capital gains (STCG).

What’s the Issue?

Section 87A provides a rebate of up to ₹12,500 for taxpayers whose total income does not exceed ₹5 lakh. However, this rebate applies only to normal taxable income and does not extend to capital gains. If your total taxable income, including capital gains, crosses ₹5 lakh, you are not eligible for the rebate. The IT department is now scrutinizing returns where this mistake has been made and taking corrective actions.

Received a Notice? Here’s What You Can Do!

If you have received a notice regarding this issue, here’s how you can address it effectively:

✔ Review Your ITR: Check if you mistakenly claimed the rebate under Section 87A on capital gains income. 

✔ Respond Promptly: Ignoring the notice can result in penalties or additional tax demands. It’s crucial to act within the given timeframe. 

✔ File a Revised Return: If you realize that you’ve made an error, file a revised return before the due date to correct the mistake. 

✔ Consult a Chartered Accountant (CA): Seeking professional guidance can help you navigate the issue and avoid penalties or future compliance troubles.

How to Avoid This Issue in the Future

To prevent such tax complications in the future, always separate your capital gains income from your normal taxable income when filing your tax returns. Being aware of tax laws and seeking expert advice when needed can save you from unnecessary hassles.

Final Thoughts

The Income Tax Department is tightening its scrutiny over incorrect rebate claims. If you have included capital gains under Section 87A and your total income exceeds ₹5 lakh, you may receive a notice. Address the issue proactively by reviewing your tax return, responding to the notice, and seeking expert help if needed.