Bombay HC grants interim relief in rebate issue, directs extension of date for revised return

MUMBAI: Scores of taxpayers, including the salaried, who were unable to claim an Income-tax rebate in their tax returns for the assessment year 2024-25 (Financial year ended March 31, 2024), owing to software changes in the filing platform (filing utility) made by the Income-tax (I-T) department stand to benefit by an interim order passed by the Bombay high court . Additional time has been granted to these taxpayers to file a revised return and claim a tax refund .

A Public Interest Litigation (PIL) filed by The Chamber of Tax Consultants, challenged disabling of Section 87A rebate claims through the filing utility. The PIL, contended that changes made to the tax filing utility after July 5, 2024, arbitrarily prevented taxpayers from claiming the rebate under Section 87A. This rebate, introduced to provide tax relief to individuals with an income below a specified threshold, has long been considered a cornerstone of equitable taxation.

Under section 87A, a taxpayer with a total income of up to Rs. 5 lakhs under the old regime and up to Rs. 7 lakh under the new regime was entitled to a tax rebate of Rs. 12,500 and Rs. 25,000 respectively. However, the I-T department’s updated filing utility allegedly disabled this rebate for those filing under the new regime in specific cases, such as when tax is levied at special rates, eg: tax at 15% on short-term capital gains or 10% on long-term capital gains on sale of on equity shares or equity-oriented mutual funds.

The high court bench, presided over by Chief Justice Devendra Kumar Upadhyaya and Justice Amit Borkar, made critical observations regarding the issue. It noted that procedural changes, such as those in the tax filing utility, cannot override statutory rights. The rebate under Section 87A is inherently linked to a taxpayer’s total income and should be accessible to all eligible taxpayers. The high court emphasized that tax authorities must act as facilitators, ensuring compliance with legislative intent rather than creating procedural impediments.

The bench observed that due to a change in the filing utility with effect from July 5, 2024, taxpayers at large were not able to compute rebate under Section 87A of the Act under the new regime, in respect of income taxable at special rates. This resulted in additional tax to be paid by them.

Taxpayers are entitled to file a revised return computing the rebate under section 87A, which will enable them to get a tax refund. The last date for filing, which is December 31, 2024 has been directed to be extended by the interim order to January 15, 2025. Based on the high court’s directive, the Central Board of Direct Taxes (CBDT) is expected to notify this extension in the coming days. The PIL is scheduled for final disposal in early Jan.