The Commissioner of Income Tax (Appeals) [CIT(A)] has determined that the Centralized Processing Centre (CPC) erred in restricting the rebate available under Section 87A. Thus, it allowed the 87A rebate on special rate incomes. The case pertained to an appellant who filed their Income Tax Return (ITR) for the Assessment Year (AY) 2024-25 on July 27, 2024, declaring a total taxable income of ₹5,40,670. The return was processed under Section 143(1) on September 19, 2024, with the Centralized Processing Centre (CPC) accepting the declared income. However, the CPC denied the rebate under Section 87A, restricting the taxpayer’s entitlement to financial relief. An income tax rebate is a direct reduction in the total tax payable by an individual, unlike tax deductions, which lower taxable income. Individuals can claim a rebate if they have overpaid taxes or qualify for a tax credit under specific provisions.

As per the Union Budget 2025, the rebate limit under Section 87A of the Income Tax Act has been increased for resident individuals opting for the new tax regime. For FY 2025-26 (AY 2026-27), taxpayers with a taxable income of up to ₹12 lakh are now eligible for a rebate, up from the previous limit of ₹7 lakh. In this matter, the CIT(A) observed that “Thus a composite reading of Section 87A r.w.s. 112A does not bar the appellant from claiming rebate u/s 87A. In view of the above discussion and also for the fact that the appellant has continued the option exercised u/s 115BAC, it is held that the AO, CPC had erred in restricting the rebate 87A. The AO is directed to allow the deduction u/s 87A as per provisions. The grounds of appeal are consequently allowed for statistical purpose.”   The CIT(A) explicitly directed the Assessing Officer (AO) to allow the rebate in accordance with the provisions of Section 87A.