Overview

• A CBDT circular dated September 19 directs rectification of cases where Section 87A was incorrectly allowed on special-rate incomes such as short-term capital gains, triggering fresh tax demands.
• Interest under Section 220(2) will be waived if these demands are settled by December 31, 2025, with interest payable on delays beyond the deadline.
• Several FY 2023-24 returns had claimed or were mistakenly processed with the rebate on short-term capital gains, and the Income Tax Department is reversing those allowances and raising dues.
• The dispute led to a Bombay High Court directive in December 2024 to permit revisions, followed by a 15-day window in January 2025, yet many taxpayers subsequently received payment notices.
• Prospectively, Union Budget 2025 bars the rebate for special-rate incomes from FY 2025-26 and raises the new-regime rebate threshold to Rs 12 lakh, while the short-term capital gains rate moved from 15% in FY 2023-24 to 20% from FY 2024-25.