Extension for Filing Revised or Belated Income Tax Returns: Clearing the Air
Tax season often brings its share of last-minute surprises, and this year is no exception. The CBDT, through its Circular No. 21/2024 dated 31.12.2024, has extended the due date for filing belated or revised income tax returns from December 31, 2024, to January 15, 2025.
This extension was not just a routine decision—it stemmed from a directive by the Bombay High Court in response to a Public Interest Litigation (PIL) filed by the Chamber of Tax Consultants. At the heart of the dispute is the disallowance of the Section 87A rebate on capital gains income. But what’s all the buzz about? More importantly, how does this affect you, the taxpayer? Let’s break it down, understand the confusion, and address some of the most pressing questions surrounding this development.
The Heart of the Matter:
Section 87A of the Income Tax Act provides a rebate for individual resident taxpayers, reducing tax liability significantly if their income is below ₹5 lakh under the Old Tax Regime (OTR) or ₹7 lakh under the New Tax Regime (NTR). The rebate, capped at ₹12,500 (old regime) or ₹25,000 (new regime), has been calculated & offered by the income tax department utility applied on all types of income, including capital gains.
However, a twist emerged on July 5, 2024, when the Income Tax Department updated its utility software, disallowing the rebate on capital gains income. This move sparked confusion, as many taxpayers had already filed returns assuming the rebate applied.
The Chamber of Tax Consultants challenged the disallowance of rebate U/s 87A by changing the utility on 5th July 2024 by way of PIL before Bombay HC. By way of interim relief, the Bombay High Court directed to extend the filing deadline to help taxpayers address the issue. It has been announced on December 31, 2024 that the utility software for ITR-2 and 3 (the only ITRs where capital gains income can be offered for tax) will soon be updated. This means taxpayers can now file a revised or belated ITR to claim section 87A tax rebate, provided they are eligible for the same.
What Does the Date Extension Mean?
The extension allows taxpayers who were previously denied section 87A rebate to revise their returns or file belated ones using updated software. But naturally, this has raised a few important questions in the mind of taxpayers and tax professionals. Let us sum up various issues arising from the date extension.
Q1: Can taxpayers get a refund for excess taxes paid due to 87A denial?
Answer: The matter is still pending before the Bombay High Court. If the court rules in favor of taxpayers, refunds will likely be processed for excess taxes paid. No final ruling has been given yet and the final decision on the issue is still pending. Presently, merely the date is extended as part of the interim relief.
Q2: Should I revise my return if I didn’t claim the rebate in my original filing?
Answer: The date is primarily extended as the present utility was not permitting the rebate U/s 87A at the time of filing the ITR. As a result, few taxpayers could not file the ITR & kept it on hold. Those taxpayers who have already filed the ITR without availing rebate U/s 87A may use the opportunity of revising the ITR if they wish so.
[In my view, filing the revised return may not be necessary as rebate U/s 87A could be granted by the income tax department itself while processing the return U/s 143(1)(a) as well. One may note that Section 143(1)(a) reasonably empowers the CPC to make prima facie adjustment while processing the return and rebate U/s 87A could very well within the power of CPC. Filing a revised return isn’t mandatory but is still an option for those who wish to claim the rebate now.
Q3: Can the department allow the rebate without a revised return?
Answer: Yes. As discussed hereinabove, if the court affirms that capital gains qualify for the 87A rebate, taxpayers could receive the benefit, even if it wasn’t claimed in either the original or revised return.
Q4: If I already claimed the rebate but it was disallowed, do I need to revise my return?
Answer: No, if the taxpayers have already claimed the rebate in the original ITR and the same is disallowed by the department then taxpayers may not file any revised return. If the court finally decides the issue in favour of taxpayers then the rebate can be granted even by request for rectification of erroneous processing earlier.
Q5: Whether the revision of ITR could attract any trouble or scrutiny by the Income Tax Department?
Answer: Not at all. Filing a revised return specifically to claim the 87A rebate will not trigger a scrutiny notice.
Q6: If I miss the January 15 deadline to file revised return, can it be done at a later date by filing Updated Return after 15th Jan 2025?
Answer: Updated ITR (ITR-U) option can be used to disclose previously undisclosed incomes, etc by paying a penal tax amount of 25% or 50%. ITR-U is never for claiming any additional benefit or rebate & does not permit tax refunds. After January 15, taxpayers can file an Updated Return (ITR-U). However, this cannot be for making additional claims & rebates for refunds.
Q7: Can I revise my return even if there is no issue of tax rebate U/s 87A in my case?
Answer: Absolutely! The extension applies broadly to all taxpayers, not just those impacted by the 87A issue.
Wrapping it up:
The extension to January 15, 2025, is a chance to ensure that your tax affairs are in order. Whether you’re revising to claim the Section 87A rebate or making other corrections or filing belated return, this is an opportunity to address any discrepancies before the window closes. In the ever-evolving world of tax regulations, staying informed and proactive makes all the difference. As the final verdict from the Bombay High Court on the 87A rebate still awaited, the suspense is palpable. Will this ruling bring clarity or add another twist to the tale, only time will tell. So, stay tuned…!
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & responses to queries are available at www.theTAXtalk.com].
