₹7 Lakh Income but Still Got a Tax Notice? Find Out the Reason

Several taxpayers in India, especially those who revised their income tax returns (ITRs) in January 2025, are now facing unexpected demand notices from the Income Tax Department. These individuals, despite having a total income of less than ₹7 lakh, are being denied the Section 87A rebate.

What Is the Core of the Controversy?

The notices have been issued under Section 143(1) of the Income Tax Act. According to tax professionals, the department claims that taxpayers with income falling under special tax rates—such as Short-Term Capital Gains (STCG) taxed at 15% under Section 111A—are not eligible for the rebate under Section 87A, even if they filed revised returns in the permitted window.

Timeline: When Did the Confusion Begin?

For FY 2023–24 (AY 2024–25), the rebate under Section 87A was applicable to:

• Individuals with a total income up to ₹5 lakh under the old tax regime
• Individuals with a total income up to ₹7 lakh under the new tax regime

However, a key question emerged, should income taxed at special rates like STCG be considered for the rebate?

The ITR utility update on July 5, 2024, removed the 87A benefit on STCG income in the new regime, leading to widespread confusion.

Bombay High Court Order Added Hope, Then More Confusion

In December 2024, the Bombay High Court ruled that taxpayers should be allowed to amend their returns, giving them a window from January 1 to January 15, 2025. Many taxpayers acted promptly and revised their ITRs to claim the 87A rebate.

Yet now, those same taxpayers are receiving notices rejecting their claims, despite following the court’s directive. This contradictory stance by the department has left taxpayers in a dilemma.

Chartered Accountants Step In: Filing Appeals

According to a news report, several chartered accountants (CAs) are preparing appeals on behalf of their clients to challenge the notices. In regions like Gujarat and Mumbai, some cases have already seen favourable outcomes for taxpayers. However, tax professionals caution that each case is unique and will likely be decided based on individual merits.

Even Early Filers Are Not Spared

Interestingly, taxpayers who filed ITRs before July 5, 2024, when the ITR utility still allowed the rebate, are also receiving notices. According to experts, the tax department is now revisiting earlier returns and raising new demands—even for small discrepancies.

Budget 2025 Announcement: Clarification or More Confusion?

In the Union Budget 2025, the government clarified that from FY 2025–26 onwards, income taxed at special rates like STCG will not be eligible for Section 87A rebate.

However, this clarification does not apply retrospectively to FY 2023–24, further intensifying the confusion for current taxpayers.

Conclusion

The matter has now become a point of serious concern for both taxpayers and tax professionals. With differing interpretations from the judiciary and the tax department, clarity is lacking. Until official guidelines are issued, many individuals may have no option but to appeal for relief on a case-by-case basis.

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