The income tax (I-T) department changed its income tax returns (ITR) utility on July 5, and now those filing returns under the new tax regime are unable to get rebates under Section 87A of the Income Tax Act for short-term capital gains (STCG) under Section 111A and 112.
Tax experts termed the department’s new interpretation “illogical” and “not in consonance with the law”.
Section 112A specifically bars the claiming of rebate under Section 87A for long-term capital gains (LTCG) from equity. There is no such restriction under Section 111A for short-term capital gains (STCG) on equity and under Section 112 for other LTCG and therefore, taxpayers have been correctly claiming rebate against this income, they said.
The proviso to Section 87A, expanding the scope of total income threshold from Rs 5 lakh to Rs 7 lakh and eligible rebate from Rs 12,500 to Rs 25,000, was introduced to encourage taxpayers to opt for the New Tax Regime under Section 115BAC and not deprive them of what continues to be available under the old scheme.
The blinkered interpretation of the department issued on July 5, 2024, regarding interpreting the meaning of total income of Rs 7 lakh, as income taxable under normal rates, excluding equity STCG and other LTCG, because they attract special rates, is grossly illogical and not in consonance with the law, said experts.
Multiple meanings cannot be assigned to the term ‘total income’ and doing so would lead to not only iniquitous but also highly mischievous interpretations. Many have filed returns before July 5 and therefore, taxpayers who file returns now must pay more tax for the same income.
It also discriminates as regards the rebate between taxpayers preferring old or new regimes, when tax provisions of both Sections 111A & 112 are evenly applicable to both. If timely and logical clarification is not issued by the department, the matter can reach court for justice, many felt.
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