Payback the Section 87A rebate amount claimed against capital gains, says the tax demand notice; What are your options?

economictimes.indiatimes.com:

income tax demand notice due to denial of Section 87A tax rebate on special rate income like Short Term Capital Gains (STCG) for ITRs of FY 2023-24 (AY 2024-25). This issue, which was once thought to be resolved after the Bombay High Court judgement on January 24, 2025, is once again back to haunt small taxpayers.

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Section 87A tax rebate is given to taxpayers with a total income up to Rs 5 lakh under the old tax regime (up to Rs 12,500) or up to Rs 7 lakh under the new tax regime (up to Rs 25,000) for FY 2023-24 (AY 2024-25). Due to this tax rebate under Section 87A the net tax liability becomes nil for these income levels.
This means either you have to make payment as per the notice or prepare to contest this notice in a court of law.

There could be a third alternative of filing a grievance and reprocessing request but experts are not sure whether the tax department will grant this alternative method’s benefits or not. This is because the Income Tax Department is yet to issue any clarification about why Section 87A tax rebate is not being given on special rate income like STCG.

What is the issue for which tax demand notices are being sent?

This issue started from July 5, 2024 when the Income Tax Department ITR utility software was modified to prevent any taxpayer to claim Section 87A tax rebate on special rate income like STCG. From July 5,