Section 87A STCG Demand Notice Rs 62,400 — CBDT Circular 13/2025
The Rs 62,400 Demand Notice: Why ITR Filers With Capital Gains Are Getting Section 87A Letters
Ravi Khanna (composite illustrative profile, not a real taxpayer) — a Bengaluru product manager three years into a Series C SaaS company, half his compensation in RSUs that vested in March 2026 — opened the income-tax e-filing portal in May 2026 expecting a refund. He found a Section 87A capital gains demand notice for Rs 62,400 under Section 143(1) instead — and the law was on CBDT's side, not his. Ravi had paid his TDS through Form 26AS, filed ITR-2 correctly, and claimed the rebate the New Regime promises every salaried person earning under Rs 12 lakh. None of those facts were wrong. The demand notice was legally correct too.
The reason both can be true simultaneously is Section 87A's specific interaction with capital gains income — and it is catching out thousands of salaried tech employees, mutual fund investors, and equity traders this ITR season.
This article explains what the demand is for, why CBDT Circular 13/2025 settles the legal question, and what you should do if you receive one. The worked example reconciles the Rs 62,400 figure step by step, using the salary and STCG profile that describes the majority of affected filers.
- Some salaried filers with short-term capital gains (STCG under Section 111A) are receiving demand notices around Rs 62,400 because they assumed Section 87A would apply to their STCG tax — it does not, per CBDT Circular 13/2025.
- Section 87A applies only to income taxable at slab rates (salary, business income, other sources). STCG under Section 111A (taxed at 20%) and LTCG under Section 112A (taxed at 12.5%) do not get 87A relief — even if your total income is below Rs 12 lakh.
- The Rs 62,400 figure comes from a specific case: salary Rs 9.25L + STCG Rs 3L under the New Regime. The slab tax disappears under 87A. The STCG tax does not — and that gap is what CBDT is demanding. (Full step-by-step math below.)
- The 220(2) interest waiver window is closed. CBDT Circular 13/2025 offered a waiver of Section 220(2) late-payment interest if the rectification demand was paid on or before 31 December 2025. That window has passed. For demand notices received in 2026, Section 220(2) interest at 1% per month accrues from the day after the 30-day payment window expires. Pay immediately to stop the clock.
What the Demand Notice Actually Says
The notice itself. A Section 143(1) intimation is an automated communication from CBDT's Centralised Processing Centre (CPC) at Bengaluru. It is not a scrutiny notice — it is a computational check that compares your filed return against CBDT's calculation of your tax liability. When the CPC calculates a higher tax than you paid, it issues an intimation-cum-demand notice for the difference. The typical notice cites the specific sections of the Income-tax Act under which tax is computed, the amount of tax as per the filed return, and the amount as per CBDT computation, and asks for payment of the shortfall within 30 days.
The legal basis. Section 87A of the Income-tax Act, 1961, as amended by Finance Act 2025, provides a rebate of up to Rs 60,000 for taxpayers under the New Regime whose total income does not exceed Rs 12 lakh. The provision is straightforward in purpose: it ensures that a salaried person earning up to Rs 12 lakh pays effectively zero income tax under the New Regime. The Finance Minister stated this explicitly during the Budget 2025-26 announcement.
The operative document. CBDT Circular No. 13/2025 — bearing reference F. No. 275/09/2025-IT(Budget), dated 19 September 2025, and signed by Rajendra Kumar Meena, Under Secretary IT-Budget, CBDT — is an Order issued under Section 119 of the Income-tax Act, 1961. Its primary purpose is to waive Section 220(2) interest on late payment of demands arising from rectifications where the Section 87A rebate had been incorrectly allowed against special-rate income. The Circular was distributed to the Institute of Chartered Accountants of India (ICAI), meaning every practicing Chartered Accountant in India received formal notice. Critically, paragraph 1 of the Circular references the 87A carve-out for special-rate income as an existing legal position — it is not establishing a new rule. The carve-out pre-existed in the statute through Section 115BAC(1A) and its interaction with Chapter XII provisions.
The notices arrived in May 2026, but the legal basis was settled earlier. CBDT Circular 13/2025 has been in the public domain since 19 September 2025 — the practical impact is only being felt now because ITR-2 filings for AY 2026-27 are flowing through CPC. The deeper question is whether the New Regime's promise of "Rs 12L tax-free" was always going to be undercut by the special-rate income carve-outs for capital gains. The answer, reading the statute carefully, is yes — and the lesson for future filings is to always separate slab-rate income from special-rate income when computing your 87A eligibility and application.
CBDT Circular 13/2025 — What It Says and Why It Matters
What the Circular says. Section 87A, read with CBDT Circular 13/2025, establishes two distinct tests. First, the eligibility test: is your total income (including capital gains) Rs 12 lakh or below? If yes, you are eligible for the rebate. Second, the application test: against which portion of your tax is the rebate applied? Answer: only against the tax computed on slab-rate income. This two-step structure is what creates the gap between popular expectation and legal reality.
What is excluded. The following categories of income are taxed at special flat rates and are outside the scope of 87A's application: (a) Short-term capital gains from listed equities and equity mutual funds under Section 111A, taxed at 20% (revised from 15% by Finance (No. 2) Act 2024, effective 23 July 2024); (b) Long-term capital gains from listed equities and equity mutual funds above Rs 1.25 lakh under Section 112A, taxed at 12.5%; (c) Other special-rate income such as winnings from lotteries, horse races, etc.
Several guides and social media discussions still cite 15% as the Section 111A STCG rate. This is outdated. Finance (No. 2) Act 2024 raised the rate to 20% effective 23 July 2024. For all equity transactions in FY 2025-26 (which begins 1 April 2025, entirely post-July 2024), the applicable rate is 20%. The Rs 62,400 demand notice in the worked example below is computed at 20%.
The statutory basis. The carve-out has been embedded in the Income-tax Act since Section 115BAC(1A) was introduced. Under Section 115BAC(1A), income chargeability is subject to the provisions of Chapter XII — and Chapter XII special-rate incomes (Sections 111A, 112A, and others) are explicitly outside the slab-rate computation track. Section 87A's proviso clause (b) applies the rebate to income chargeable under Section 115BAC(1A) — i.e., slab-rate income only. Circular 13/2025 references this legal architecture as the existing position in its paragraph 1; it does not create the carve-out, it operationalises the consequences of the carve-out having been ignored in some processed returns.
The threshold question. A common confusion: if capital gains are excluded from the 87A application, are they also excluded from the threshold check? No — for the purpose of determining whether you qualify for 87A (the Rs 12 lakh limit), your total income includes capital gains. This means: if your salary is Rs 9.25 lakh and your STCG is Rs 3 lakh, total income is Rs 11.5 lakh, which is below Rs 12 lakh, so you do qualify for the rebate. But the rebate itself only offsets the slab tax on your Rs 8.5 lakh net salary — not the STCG tax on the Rs 3 lakh.
Circular 13/2025 references the existing legal position as a given — the carve-out has been in the statute since Section 115BAC(1A) was introduced. What the Circular adds is two operational facts: confirmation of the rectification mechanic for returns where the 87A rebate was incorrectly allowed against special-rate income, and a time-bound waiver of Section 220(2) interest if the resulting demand was cleared by 31 December 2025. The fact that CBDT routed the Circular through ICAI means every Chartered Accountant in India received formal notice of both the rectification mandate and the waiver window. The filers most surprised are those whose CAs relied on the pre-Circular ambiguity in good faith — a position that is now closed.
The Rs 62,400 Worked Example — Step by Step
Here is the exact computation that produces the Rs 62,400 demand, using Ravi's profile: salary Rs 9,25,000 and STCG Rs 3,00,000 under the New Regime for FY 2025-26 (AY 2026-27).
| Step | Computation | Amount |
|---|---|---|
| Gross salary income | As earned | Rs 9,25,000 |
| Standard deduction (New Regime) | FY 2025-26 | − Rs 75,000 |
| Net salary (slab-rate income) | Rs 8,50,000 | |
| STCG (Section 111A) | Special rate income | Rs 3,00,000 |
| Total income (threshold check) | Rs 8.5L + Rs 3L | Rs 11,50,000 |
| 87A eligibility | Rs 11.5L ≤ Rs 12L → Eligible | YES |
| Slab tax on Rs 8,50,000 | 0−4L: NIL; 4−8L: 5% = Rs 20,000; 8−8.5L: 10% = Rs 5,000 | Rs 25,000 |
| Section 87A rebate (applied to slab tax) | Offset slab tax fully (Rs 25K < Rs 60K cap) | − Rs 25,000 |
| Net slab tax | NIL | |
| STCG tax at 20% (Section 111A) | 20% × Rs 3,00,000 — 87A does NOT apply | Rs 60,000 |
| Health & Education Cess at 4% | 4% × Rs 60,000 | Rs 2,400 |
| Total tax demand | Rs 62,400 |
What Ravi filed vs what CBDT computed. Ravi's filed return assumed that since his total income (Rs 11.5 lakh) was below the Rs 12 lakh threshold, the Section 87A rebate eliminated all tax liability. Filed tax: NIL. CBDT's computation per Circular 13/2025: slab tax of Rs 25,000 is indeed offset by 87A, but STCG tax of Rs 60,000 plus cess of Rs 2,400 is not covered by 87A. The Rs 62,400 demand is the difference between what he paid (NIL) and what CBDT says is owed.
The Rs 62,400 figure is the rectification demand itself — STCG tax of Rs 60,000 (at the 20% Section 111A rate on Rs 3 lakh) plus the 4% Health & Education Cess of Rs 2,400. There is no Section 234C in this number. Section 220(2) interest is what accrues on top of Rs 62,400 if payment is not made within the original 30-day window. CBDT Circular 13/2025 waived that 220(2) interest if the demand was paid by 31 December 2025. After that date — meaning every reader receiving a demand notice today — the interest is back on the clock at 1% per month. A demand notice received in May 2026 with a 30-day window means interest begins accruing from day 31: roughly Rs 624 per month added to the Rs 62,400 principal until paid.
Who Is Most Affected
Tech employees with vested RSUs. This is the highest-risk profile. RSUs vest and employers typically deduct TDS at salary-applicable rates. When the employee then sells vested shares within 12 months of vesting, STCG under Section 111A is generated. The employer's TDS computation typically does not account for 87A's interaction with this STCG. The result: TDS is deducted on the salary portion, the employee claims 87A on filing, and the STCG tax is either unpaid or understated. For RSU holders selling significant tranches, the demand can exceed Rs 1 lakh depending on the gain amount.
Salaried investors redeeming equity mutual funds within one year. Any redemption from equity funds held for less than 12 months generates STCG under Section 111A at 20%. A salaried employee in the Rs 7–12 lakh range who redeemed, say, Rs 2–4 lakh of equity fund units during FY 2025-26 faces the same structural mismatch — especially if their financial planner or employer TDS assumption did not account for the STCG separately.
Trading-active salaried filers. Anyone who traded equity intraday (speculative income, taxed at slab rates and therefore within 87A's scope) alongside delivery-based short-term trades (STCG, outside 87A's scope) faces a two-track computation. The intraday gains add to slab income; the delivery gains are a separate STCG track. Conflating these two — treating all equity gains as slab-rate income — is the most common error among self-filing traders.
Tech employees with vested RSUs are the cleanest case study. The RSU vest, the employer deducts TDS at salary rates on the FMV at vesting, and the employee sells some or all of the stock within the year — generating STCG. The demand notice is almost mechanical for this profile. The single most effective hedge for FY 2026-27: hold vested stock for at least 12 months wherever possible. LTCG treatment under Section 112A (12.5% on gains above Rs 1.25 lakh annual exemption) is a materially different tax outcome from STCG at 20%, and the holding period discipline pays off across multiple dimensions including the 87A carve-out.
How to Respond to the Demand Notice
- Access the notice on the e-filing portal. Log into incometax.gov.in → click "Pending Actions" → locate the Section 143(1) intimation. Download the PDF and read the CPC's computation carefully. Note the income heads, tax rates applied, and the demand breakdown.
- Reconcile against your filed return. Compare your ITR-2 computation sheet with the CPC's intimation. Identify the specific line where the figures diverge — it will almost certainly be the Section 87A application against STCG tax. Note the exact difference and confirm it matches the demand amount.
- If the CBDT calculation is correct: pay within 30 days. Section 220(2) charges interest at 1% per month on the unpaid demand. If the notice is dated May 2026, the 30-day window closes in late June. Pay through the portal (challan 280, Assessment Year 2026-27, Self Assessment Tax). Keep the payment challan number for your records and for the intimation response on the portal.
- If you believe there is a genuine computational error: file rectification under Section 154. A Section 154 rectification is appropriate when CBDT has made a mistake in computation — wrong income, wrong rate, wrong deductions. It is NOT appropriate to dispute CBDT's interpretation of 87A's interaction with STCG, because Circular 13/2025 explicitly supports CBDT's position. Rectification on interpretation will be rejected; rectification on computational errors may succeed.
- Update your advance tax planning for FY 2026-27 — discuss with your CA. If you expect STCG in the current financial year, advance tax instalments must account for the STCG tax separately because 87A will not offset it. Advance tax due dates: 15 June (15%), 15 September (45%), 15 December (75%), 15 March (100%). Under-payment during the financial year leads to Section 234C interest (advance-tax shortfall interest, distinct from Section 220(2) which applies to unpaid demand notices).
CBDT Circular 13/2025 included a one-time waiver of Section 220(2) interest for taxpayers who paid their rectification demand on or before 31 December 2025. That window has closed. For any demand notice received after 31 December 2025 — which includes every notice issued in the May–July 2026 ITR processing cycle — Section 220(2) interest at 1% per month (simple interest) accrues from the day after the 30-day payment deadline expires. On a Rs 62,400 demand, that is approximately Rs 624 per month in additional interest. Pay the demand within the 30-day window shown on your notice to stop the clock.
Rectification under Section 154 is the right procedural move only when there is a computational error in CBDT's notice — wrong income reported, wrong rate applied, wrong deductions allowed. Disputing the interpretation itself (arguing that 87A should apply to STCG tax) will not succeed because Circular 13/2025 settled that question definitively. Spend your rectification effort on verifiable math errors, not legal disagreements. The one exception: if your STCG arose from transactions before 23 July 2024 (when the rate was still 15%), CBDT applying 20% to that tranche would be an error worth rectifying.
Planning your FY 2026-27 taxes? The FinEstate Tax Calculator separates slab-rate income from special-rate income and applies Section 87A correctly.
Open the Free Tax CalculatorThis is not a CBDT mistake. CBDT Circular 13/2025 adopted the textual reading of Section 87A that the statute has always supported. The Rs 62,400 demand is the gap between what the generous interpretation promised and what the law actually delivers. The fix going forward is structural: mentally separate your slab-rate income (salary, business, other sources) from your special-rate income (STCG, LTCG) at the start of every financial year. Section 87A applies to the first track only. If you have STCG or LTCG, compute that tax separately, include it in your advance tax instalments, and do not count on the Rs 12 lakh rebate to absorb it. The Old vs New Tax Regime calculator and Tools page have been updated to reflect this correctly.
If you have RSUs vesting in FY 2026-27 — or you sold equity inside 12 months last year — the question is not whether you owe. It is how much. Forward this to one colleague who files ITR-2. They will thank you in late June.
- Section 87A rebate applies to slab-rate income only. STCG under Section 111A (20%) and LTCG under Section 112A (12.5%) are outside its scope, even if your total income is below Rs 12 lakh.
- CBDT Circular 13/2025 made the carve-out explicit. Demand notices issued May–July 2026 for AY 2026-27 filings reflect this position.
- The Rs 62,400 demand arises from salary Rs 9.25L + STCG Rs 3L. Your actual demand depends on your specific STCG amount — the math is 20% of STCG + 4% cess, with Section 220(2) interest at 1% per month if not paid within the 30-day window.
- Rectification under Section 154 does not succeed on the interpretation question. If you receive a 143(1) notice and the CBDT calculation is mathematically correct, pay within 30 days to avoid Section 220(2) interest at 1% per month.
- For FY 2026-27: hold equity positions for 12+ months wherever possible, account for STCG/LTCG tax in advance tax instalments, and use the FinEstate Tax Calculator to plan your tax year before gains are realised.
- CBDT Circular No. 13/2025 — F. No. 275/09/2025-IT(Budget) — dated 19 September 2025. Order under Section 119 of the Income-tax Act, 1961 for waiver of Section 220(2) interest on late payment of demand arising from rectifications where Section 87A rebate was incorrectly allowed. Signed: Rajendra Kumar Meena, Under Secretary IT-Budget, CBDT. Available at incometaxindia.gov.in.
- Section 87A, Income-tax Act 1961 — as amended by Finance Act 2025
- Section 111A, Income-tax Act 1961 — Short-term capital gains on equity
- Section 112A, Income-tax Act 1961 — Long-term capital gains on equity
- Finance (No. 2) Act 2024 — Amendment to STCG rate under Section 111A (20% effective 23 July 2024)
- Finance Act 2025 — Section 87A rebate (Rs 60,000 for New Regime, total income ≤ Rs 12L)
- Income Tax e-Filing Portal — Pending Actions / Section 143(1) intimation response guide
- FinEstate — Old vs New Tax Regime FY 2025-26 (cluster anchor)
- FinEstate — ITR Filing AY 2026-27 Step-by-Step Guide
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