This ITR default could trigger penalty: Beware if STCG or LTCG crosses ₹5 lakh total income

Thousands of taxpayers may be unknowingly inviting tax penalties by wrongly claiming the ₹12,500 rebate under Section 87A — a mistake flagged by tax advisory platform efiletax, which warns that the ITR utility’s default settings ignore capital gains taxed at special rates.

Section 87A offers a rebate of up to ₹12,500 for resident individuals whose total income, including special-rate income, does not exceed ₹5 lakh. But according to efiletax, the government’s ITR utility auto-calculates eligibility based only on slab-rate income, excluding short-term capital gains (STCG @15%) and long-term capital gains (LTCG @10%).

This creates a significant compliance risk. For example, a taxpayer earning ₹3 lakh in salary and ₹3 lakh in STCG has a total income of ₹6 lakh. While slab income is below ₹5 lakh, the inclusion of STCG makes them ineligible for the rebate — yet the ITR utility still shows it applied, unless manually overridden.

“Many filers are misled into claiming a rebate they aren’t entitled to,” efiletax said in a note. “The utility doesn’t flag these errors, and people assume it’s correct.”

The platform warns that manual overrides — when used irresponsibly — can result in incorrect filings, triggering tax demands and penalties under Section 270A for underreporting.

efiletax urges filers to validate their eligibility using Form 10-IEA, and to remove the rebate manually if total income, including all special-rate components, crosses the ₹5 lakh threshold.

The advisory concludes with a caution: “Even one wrong ₹12,500 claim can result in scrutiny. When in doubt, don’t guess — ask a CA.”