After an update to the tax-filing utility on the income tax portal, since July 5, 2024, taxpayers are forced to give up a valid rebate of up to Rs 25,000 under the new tax regime if they have booked short-term capital gains.
The rebate of Rs 25,000 was previously available to individuals with taxable incomes below Rs 7 lakh who opted for the new tax regime. The Institute of Chartered Accountants of India and the Bombay Chartered Accountants' Society have written to the Finance Ministry seeking a reversal of rebate restriction.
As per provisions of the I-T Act, the maximum rebate u/s 87A as per the normal provisions of the Act is Rs.12,500, if the total income does not exceed Rs.5 lakhs. The maximum rebate u/s 87A as per the default tax regime u/s 115BAC(1A) is up to Rs.25,000, where the total income of a resident individual under the default tax regime does not exceed Rs.7 lakh.
What Experts Say
Chartered accountants say this move is out of the bounds of provisions in the Income Tax Act and will affect a large segment of low-income earners who are unable to claim the full rebate of Rs 25,000 under section 87A if they have booked short-term capital gains of 15 per cent. This change was implemented after the income tax utility was updated on July 5, 2024, they say. Earlier taxpayers with gross total income below Rs 7 lakh could still claim the rebate even after booking STCG under section 111A. The provision to restrict rebate was that if you claim long-term capital gains tax of 10 per cent under Section 112A without indexation, you won't be allowed to claim the 87A rebate.
"However there is no such restriction in respect of short-term capital gains on transfer of equity shares, units of equity-oriented fund and business trust (on which STT is paid) chargeable to tax at 15 per cent under section 111A and long-term capital gains chargeable to tax at 20 per cent under section 112," a letter representing ICAI to Finance Ministry said. Experts feel that the current income tax filing utility is creating ground for confusion in future income tax notices.
When a grievance was raised about this wrong restriction on rebate, the Income-tax department helpdesk replied that rebate is only allowable on tax in respect of income chargeable at normal rates and not on income tax chargeable at special rates, the letter said. However, this does not reflect the correct position of law as only section 112A places such restriction and not sections 111A or 112, the letter said.
Further, it may be noted that tax under sections 111A and 112 is levied on the entire capital gains at 15 per cent and 20 per cent, respectively, whereas tax under section 112A is levied only on the long-term capital gains over Rs. 1 lakh at 10 per cent. "Therefore, denial of rebate u/s 87A in respect of capital gains chargeable under sections 111A and 112 would cause genuine hardship to individuals who have income from these sources and are paying tax at a flat rate without any specific threshold exemption in respect of such income," the letter said.
