Income Tax Return FY25: Can Section 87A Rebate Be Claimed Manually on STCG?
The debate around claiming rebate under Section 87A on short-term capital gains (STCG) has once again come into focus with the filing of Income Tax Returns (ITR) for FY25. While the Income Tax Department’s utility software currently blocks taxpayers from availing the rebate in such cases, judicial pronouncements suggest otherwise, leaving lakhs of taxpayers in a dilemma.
What Does the Current Rule Say?
Under existing provisions, taxpayers with a total taxable income of up to ₹5 lakh under the old regime or ₹7 lakh under the new regime are eligible for a full rebate under Section 87A.
However, the ITR utility for FY25 does not allow this rebate to be applied to incomes that include STCG taxable under Section 111A. This has sparked confusion, especially since both the Bombay High Court and the Income Tax Appellate Tribunal (ITAT) have ruled in favour of taxpayers, allowing them to claim the rebate.
Why Is the Rebate Being Blocked?
The utility system automatically prevents taxpayers from availing the rebate once STCG is added to the income. This means even if a person’s overall taxable income falls within the rebate threshold, the software rejects the claim.
This contradiction between the software’s restrictions and judicial rulings has left taxpayers uncertain about the right approach to filing returns for FY25.
Can the Rebate Be Claimed Manually?
Tax experts believe that one possible solution is to manually enter the rebate amount in the relevant column of the ITR form.
Himank Singla, Partner at SBHS & Associates, explained:
“If a taxpayer wants to claim rebate under Section 87A along with STCG, they have to input the rebate value manually. This method was attempted last year as well. However, in several cases, the Income Tax Department reversed the rebate and raised fresh tax demands.”
Because of this risk, many professionals are cautious. “If the client is ready to face legal proceedings, we adjust the rebate manually. Otherwise, 99% of returns are filed as per the utility’s restrictions,” Singla added.
Legal Backing vs. Practical Risks
From a legal standpoint, taxpayers seem to have support. The Bombay High Court’s direction and ITAT’s order both suggest that the rebate should be available even when income includes STCG.
TaxBuddy.com founder Sujit Bangar noted:
“For FY24-25, taxpayers can claim the rebate manually, even if the utility blocks it, since the law supports them. But from FY25-26 onwards, the rebate will not be available on STCG.”
This effectively means that FY25 is the last financial year in which taxpayers can benefit from Section 87A rebate on short-term capital gains, provided they are willing to go through the process of intimation, possible reversal, and legal follow-up.
Majority of Returns Filed Without Rebate
Despite the legal leeway, most taxpayers are filing their returns without availing the rebate on STCG. The reason is simple—uncertainty over departmental action and the hassle of legal challenges.
Experts advise taxpayers to weigh their options carefully:
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If you want to avoid disputes, file the return as per the system.
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If you are prepared to contest and legally defend your claim, you may manually claim the rebate.
Key Takeaways
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Section 87A rebate is available up to ₹5 lakh (old regime) or ₹7 lakh (new regime).
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FY25 ITR utility blocks this rebate if STCG under Section 111A is included.
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Courts have allowed taxpayers to claim the rebate despite the block.
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Manual claim is possible but may result in reversal and fresh tax demands.
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From FY26 onwards, the rebate will not apply on STCG.
Conclusion
For taxpayers filing ITR for FY25, the Section 87A-STCG rebate issue is a grey area. While the law seems to favour taxpayers, the department’s software does not. Those willing to fight for their rights may attempt a manual claim, while others may prefer a safer route. Either way, this year could be the last opportunity to claim the rebate on short-term capital gains before the law changes from FY26.
