Taxpayers are entitled to claim a rebate under section 87A of the Income Tax (I-T) Act, 1961, which enables them to pay ‘nil’ tax when their income is up to ₹5 lakh in the old tax regime and ₹7 lakh in the new tax regime.
However, a number of taxpayers and chartered accountants have expressed their helplessness and frustration in not being able to claim this rebate in some special cases. These include short-term capital gains chargeable under section 111A and long-term capital gains under section 112.
Interestingly, the problem started on July 5.
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What is rebate under 87A?
The rebate under Section 87A enables taxpayers to reduce their income tax liability. One can claim the said rebate if the total income does not exceed ₹5 lakh (under the old regime) and ₹7 lakh in the new tax regime. After claiming the rebate under Section 87A, income tax liability becomes ‘nil’.
Taxpayers have been facing this problem with effect from July 5, 2024, when “income tax 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 at 15 per cent under section 111A,” said Anand Bathiya, president of Bombay Chartered Accountants’ Society (BCAS).
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Effectively, this means if a taxpayer has an income under short-term capital gain accruing on account of the sale of stocks or equity mutual funds, then they are not permitted to claim the rebate even if their total income is less than ₹7 lakh under the new tax regime.
On this issue, chartered accountant Pratibha Goyal, partner, PD Gupta & Company, a Delhi-based firm, says, “Until July 5, the Income Tax Return Utility was giving the benefit of rebate in the new tax regime, on short-term capital gain (STCG) taxed under section 111A of Income tax. But the utility stopped giving the rebate after July 5 on STCG taxed under section 111A or any other special incomes.”
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Letter to CBDT
On July 16, ICAI’s direct tax committee chairman Piyush S Chhajed wrote a letter to the CBDT requesting the board to allow rebate under section 87A.
The letter mentions that the issue has already been raised with the tax department.
“When grievance was raised in this regard, the reply from the income tax department helpdesk is that rebate is allowable only on tax in respect of income chargeable at normal rates and the same is not allowable on tax on any income chargeable at special rates,” the letter reads.
“This does not reflect the correct position of law, as only section 112A places such restriction and not sections 111A or 112,” counters the letter.
