No tax rebate u/s 87A allowed on short term capital gains from equities despite being eligible, what experts demand from govt
Income tax rebate under section 87A of the Income-tax Act 1961, is a tax benefit which reduces a taxpayer's net quantum of tax payable to nil if they meet the total income condition. It is given only to those taxpayers who have an income up to Rs 5 lakh under the old tax regime or up to Rs 7 lakh under the new tax regime. However, following an update in the ITR filing utility on July 5, 2024, experts have noted that many taxpayers were denied the benefit of tax rebate under section 87A if they had a special rate income.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} According to Anand Bathiya, president, Bombay Chartered Accountants' Society (BCAS), "Post 5th July 2024 the income tax return (ITR) filing utilities are not allowing the rebate under section 87A for various special rate incomes, including short-term capital gains on equity shares or equity oriented mutual funds taxable at 15% under Section 111A."
Denial of section 87A tax rebate since July 5, 2024, is increasing your tax liability
As per Bombay Chartered Accountants' Society, the new ITR filing utilities are not allowing the rebate under section 87A for various special rate incomes, including short-term capital gains on equity shares or equity-oriented mutual funds taxable at 15% under Section 111A. "Consequently, taxpayers with total incomes up to Rs 5 / 7 lakhs under the old / new regimes are forced to pay income tax on their special rate taxable incomes (excluding Section 112A), contrary to the legislative provisions of the Income Tax Act, 1961 due to a faulty return filing utility," said the BCAS in its representation to the Finance Minister dated July 18, 2024.
Do you get tax rebate under section 87A for short term gains from sale of shares/mutual funds?
Short term capital gains (STCG) are taxed at a special rate of 15% and long-term capital gains (LTCG) from sale of equity shares and mutual funds are taxed at 10% special rate for gains above Rs 1 lakh."There is a condition as per Section 112A (6) that such tax rebate under section 87A is not available on Long Term Capital Gains. Regretfully, this condition is only for Long Term Gains, and not for short term gains, and ideally STCG cases still have to be eligible for Rebate of section 87A," says CA Hardik Kakadiya, President, Chartered Accountants Association Surat.
Why is the income tax department not giving benefit of tax rebate under 87A to STCG from shares/mutual funds
As per Kakadiya, the rules and laws inputted into the tax department's software in the Utility is not allowing the tax rebate under section 87A even on short term capital gains (STCG)."Unfortunately, these updated ITR filing utilities are restricting this rebate without any corresponding amendments in section 87A or any of the respective special income sections of the Income Tax Act. The BCAS has made a representation to the Finance Ministry, and we are hopeful of this being rectified soon," says Bathiya from BCAS.
Kakadiya opines that the root cause of this issue lies with the different way the tax law is being interpreted.
"An ill-interpretation of the words 'Notwithstanding anything contained in this Act but subject to the provisions of this Chapter'' as given in Section 115 BAC (1A) which was quietly inserted with effect from 1st April 2024, is the root cause of the whole issue, but the law has to give beneficial interpretation in favour of the taxpayer. Ministry should intervene swiftly as it is the fag end of the filing season for non-audit taxpayers," says Kakadiya.
All Gujarat Federation of Tax Consultants and Income Tax Bar Association in a joint representation dated July 15, 2024 said that before July 5, 2024 the same income tax utility and calculator were allowing rebate under section 87A against the tax on short term capital gain on shares under section 111A and other special rate incomes other than long term capital gain under section 112A where such rebate is specifically barred by the sub-section (6) of the section 112A itself.
What reason did tax department's grievance redressal support agent give for denying 87A tax rebate
Screenshots shared on social media and reposted in the representations made by BCAS, All Gujarat Federation of Tax Consultants and Income Tax Bar Association show the reply given by income tax grievance agents for denial of section 87A tax rebate in certain cases.The answers given by the tax department's support agent is : "With the respect grievance raise by you, as checked your case with higher officials, if your total taxable income includes special income which are chargeable to special rates of taxes is up to 7 lakhs as per new tax regime then rebate u/s 87A will be available only to the extent taxable income which is chargeable to normal rates of taxes as "Rebate u/s 87A (1A) is not allowed for any special rate income." So accordingly, kindly proceed to file the return.
Source: BCAS representation dated July 18, 2024What is the legal validity of the reason cited by grievance cell of the income tax department behind denial of 87A tax rebate
"It may be appreciated that there is currently no subsection (1A) in Section 87A of the Income Tax Act, 1961 as erroneously referred to by the helpdesk in the screenshot above. It appears that the reference to subsection (1A) of Section 115 BAC in the newly inserted proviso by the Finance Act 2023, pertaining to the new regime, has been misinterpreted as a new subsection (1A) in Section 87A, which does not exist," said Bombay Chartered Accountants' Society in its representation dated July 18, 2024."Rebate u/s 87A is not available on tax on LTCG u/s 112A and the same has been specifically mentioned in Section 112A (6). Nothing of that sort is mentioned in Section 111A or any other special rate section for that matter. The sub-section (1A) of section 115 BAC provides for the income-tax payable in respect of the total income of a person, and NOT on the income of the person at normal rate. The total income is inseparable as it comes after inter-head adjustments. Also, the interpretation that is not in line with the general nature of calculation of tax on total income for such a long time, is grossly incorrect.," said All Gujarat Federation of Tax Consultants and Income Tax Bar Association in its representation dated July 15, 2024.
What needs to be done by the Finance Minister?
BCAS:The faulty ITR filing utilities be rectified without delay to align with the provisions of the Income Tax Act.A clear and accurate clarification be issued regarding the application of section 87A to prevent further confusion among taxpayers and tax professionals.All Gujarat Federation of Tax Consultants and Income Tax Bar Association:
In light of the above-mentioned points, we humbly request you to consider the facts and hardship to genuine and honest taxpayers and provide for clarification and immediate amendments in the utility on Income Tax Portal.We Also, request you to issue an immediate circular to the effect that the processing of income tax returns shall be done in accordance with the intention of the law in providing rebate u/s 87A in the new regime in all special rate incomes including u/s 111A. #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
