No Tax Rebate for Those with Short-Term Capital Gains, Says Income-Tax Portal
How to Avoid Capital Gains Tax? Netizen’s Humorous Advice Sparks Debate
Updated tax-filing utility denies the Rs 25,000 rebate under the new tax regime to taxpayers with short-term capital gains, sparking concerns among low-income earners.
The updated income tax-filing utility on the Income Tax portal, as of July 5, 2024, now prevents taxpayers from claiming a valid rebate of up to Rs 25,000 under the new tax regime if they have booked short-term capital gains. This change overrides the Income Tax Act, 1961, despite no amendments to the law.
First image: Bare Act section 87A being compared with 112A sub-section (6) where clearly stated that rebate not available.
— Aditi Bhardwaj 🇮🇳 (@CAAditiBhardwaj) July 17, 2024
Second image: Bare Act section 87A being compared with 111A where no where mentioned that rebate is not available.@IncomeTaxIndia @nsitharaman #incometax pic.twitter.com/TVcmB3mNos
Previously, the old utility allowed taxpayers to claim this rebate. The alteration in the utility, without legislative change, affects low-income earners who rely on the rebate to reduce their tax burden. As per the Union Budget 2023, individuals opting for the new tax regime can claim a rebate of up to Rs 25,000 if their taxable income is below Rs 7 lakh.
Tax experts argue that the issue arises from a misinterpretation of “total taxable income.” said, Founder Director at TaxAaram India, explains, “We are witnessing a peculiar trend under the new tax regime. Those whose net income is below Rs 7 lakh are unable to claim the full rebate of Rs 25,000 under Section 87A if they have booked a short-term capital gains (STCG) of 15 percent included in their income. The new utility denies this rebate on all special rate taxable incomes.”
Notably, this rebate was available for returns filed before July 5, 2024, for income earned in FY 2023-24. Tax experts told Moneycontrol that returns filed for AY 2024-25 up to July 5 could still claim this rebate despite booking short-term capital gains.
He further elaborates, “The updated tax utility’s interpretation is erroneous. The Income Tax Act or any amendment does not state that all special incomes claimed will be denied the rebate under Section 87A. The only restriction provided in the Act is regarding long-term capital gains income on equity shares taxable at 10 percent under Section 112A.”
Under Section 111A, taxpayers with gross total income less than Rs 7 lakh could still claim the rebate, even if they have booked short-term capital gains. The issue lies specifically with Section 112A, which mentions that long-term capital gains tax of 10 percent without indexation cannot claim the 87A rebate.
The anomaly needs immediate correction to prevent financial strain on hundreds of low-income earners.
