Wealth advisor says MF capital gains rebate still legal in FY25, but there is a catch
Drawing from an Ahmedabad ITAT ruling, the advisor contends that the bar on applying the Section 87A rebate to incomes taxed at special rates—like short-term and long-term capital gains—comes into effect only from FY26.
- Sep 9, 2025,
- Updated Sep 9, 2025 10:27 AM IST
With just days left to file income tax returns, a wealth advisor has reignited a contentious loophole in India’s tax code, arguing that investors can still claim the basic rebate on capital gains income for FY25, even though the law is set to close that door from next year.
The catch? The position is legally plausible, but fraught with risk.
Drawing from an Ahmedabad ITAT ruling, the advisor contends that the bar on applying the Section 87A rebate to incomes taxed at special rates—like short-term and long-term capital gains—comes into effect only from FY26. As a result, both FY24 and FY25 remain technically eligible for the ₹12,500 rebate, provided total income is within the prescribed limit.
However, the interpretation remains highly contested. In FY24, tax utilities did not permit the rebate on such incomes until a Bombay High Court directive compelled the Income Tax Department to allow it. For FY25, the situation is unclear. While the law may permit it, the department may once again resist until judicially pushed.
The advisor cautioned that claiming the rebate on gains from equity-oriented mutual funds or other instruments taxed at special rates may attract scrutiny. Debt funds may present a safer case, though even there, taxpayers are advised to proceed carefully.
Beyond the rebate debate, the advisor urged taxpayers to file their returns by the September 15 deadline—even if only reporting losses. Timely filing allows capital losses to be carried forward for up to eight years, an option not available if the deadline is missed.
Filers are also advised to reconcile all entries in their Income Tax Return (ITR) with data in the Annual Information Statement (AIS) to avoid discrepancies that could trigger notices.
With the statutory restriction kicking in from FY26, this may be the last window for such rebate claims. But given the lack of clarity—and the high compliance risks involved—investors are left weighing a narrow tax opportunity against the possibility of departmental pushback.
With just days left to file income tax returns, a wealth advisor has reignited a contentious loophole in India’s tax code, arguing that investors can still claim the basic rebate on capital gains income for FY25, even though the law is set to close that door from next year.
The catch? The position is legally plausible, but fraught with risk.
Drawing from an Ahmedabad ITAT ruling, the advisor contends that the bar on applying the Section 87A rebate to incomes taxed at special rates—like short-term and long-term capital gains—comes into effect only from FY26. As a result, both FY24 and FY25 remain technically eligible for the ₹12,500 rebate, provided total income is within the prescribed limit.
However, the interpretation remains highly contested. In FY24, tax utilities did not permit the rebate on such incomes until a Bombay High Court directive compelled the Income Tax Department to allow it. For FY25, the situation is unclear. While the law may permit it, the department may once again resist until judicially pushed.
The advisor cautioned that claiming the rebate on gains from equity-oriented mutual funds or other instruments taxed at special rates may attract scrutiny. Debt funds may present a safer case, though even there, taxpayers are advised to proceed carefully.
Beyond the rebate debate, the advisor urged taxpayers to file their returns by the September 15 deadline—even if only reporting losses. Timely filing allows capital losses to be carried forward for up to eight years, an option not available if the deadline is missed.
Filers are also advised to reconcile all entries in their Income Tax Return (ITR) with data in the Annual Information Statement (AIS) to avoid discrepancies that could trigger notices.
With the statutory restriction kicking in from FY26, this may be the last window for such rebate claims. But given the lack of clarity—and the high compliance risks involved—investors are left weighing a narrow tax opportunity against the possibility of departmental pushback.