In a recent communication to the Central Board of Direct Taxes (CBDT), the Institute of Chartered Accountants of India (ICAI) has raised a significant issue affecting individual taxpayers. The ICAI has requested the allowance of a rebate under Section 87A of the Income-tax Act on short-term capital gains chargeable under Section 111A and long-term capital gains chargeable under Section 112. This request highlights the need for amendments to the current tax utility to align it with the provisions of the law.
Background
Under the current tax regime, a rebate under Section 87A is available to resident individuals whose total income does not exceed specified thresholds. This rebate can significantly reduce the tax burden for eligible taxpayers. However, there is a disparity in the treatment of capital gains under different sections of the Income-tax Act.
Current Scenario
Section 112A imposes a tax of 10% on long-term capital gains exceeding Rs. 1 lakh from the transfer of equity shares, units of equity-oriented funds, and business trusts. Notably, it restricts the allowance of a rebate under Section 87A for these gains. However, no such restriction exists for short-term capital gains under Section 111A (taxed at 15%) and long-term capital gains under Section 112 (taxed at 20%).
Despite this, the income-tax utility currently does not allow a rebate under Section 87A for these gains. The income-tax department's helpdesk has stated that the rebate is only available for income taxed at normal rates, excluding special rate incomes like capital gains under Sections 111A and 112. This interpretation contradicts the law, which only restricts the rebate for gains under Section 112A.
ICAI's Suggestion
ICAI has suggested making the necessary changes to the income-tax utility to allow the rebate under Section 87A for taxes on short-term capital gains under Section 111A and long-term capital gains under Section 112. This would ensure the correct application of the law and relieve taxpayers from unnecessary tax burdens.
Official copy of ICAI's Representation made to CBDT is as follows
Request to allow rebate u/s 87A in respect of income-tax on short-term capital gains chargeable u/s 111A and Long-term capital gains chargeable u/s 112
Direct Taxes Committee - ICAI
Tue 16-07-2024 15:39
To: jstp12@nic.in
ICAI/DTC/2024-25/Rep-9
16th July 2024
Shri Pankaj Jindal,
Joint Secretary (TPL)-II,
Central Board of Direct Taxes,
Ministry of Finance,
Government of India,
North Block,
New Delhi-110001.
Respected Sir,
Sub: Request to allow rebate u/s 87A in respect of income-tax on short-term capital gains chargeable u/s 111A and Long-term capital gains chargeable u/s 112
The Institute of Chartered Accountants of India (ICAI), being a partner in nation building, plays a pivotal role in strengthening the relationship between the taxpayers and the Department; by bringing to the notice of the Department, genuine hardships being faced by the assessees under the Income-tax law and ensuring timely redressal of the same.
Background
Rebate u/s 87A is available to a resident individual both under the default tax regime u/s 115BAC(1A) and under the alternative tax regime as per the normal provisions of the 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 provided in the proviso to section 87A. Clause (a) of the proviso to section 87A provides for a rebate of upto Rs.25,000, where the total income of a resident individual under the default tax regime under section 115BAC does not exceed Rs.7 lakh. Clause (b) of the proviso to section 87A provides marginal relief to individuals resident in India who pay tax under the default tax regime under section 115BAC and have income marginally above Rs.7 lakh. This clarification has been given in page 21 of CBDT Circular No.1/2024 dated 23.1.2024, explaining the provisions of the Finance Act, 2023.
Concerns/issues/hardships
Section 112A levying tax@10% on long-term capital gains exceeding Rs.1 lakh chargeable on transfer of equity shares (on which STT has been paid at the time of acquisition and transfer), units of equity oriented fund and business trust (on which SIT has been paid at the time of transfer) contains a restriction that rebate u/s 87A is not allowable in respect of income-tax on such capital gains. Such income has to be reduced from the total income of the assessee and rebate under section 87A shall be allowed from the income-tax on the total income as reduced by tax payable on such capital gains.
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@15% under section 111A and long-term capital gains chargeable to tax@20% under section 112.
The income-tax utility, however, does not provide for rebate u/s 87A in respect of income-tax on short-term capital gains chargeable under section 111A and long-term capital gains chargeable under section 112. When grievance is 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.
However, this does not reflect the correct position of law, as only section 112A places such restriction and not sections 111A or 112.
Further, it may be noted that tax under section 111A and 112 is levied on the entire capital gains @15% and 20%, respectively, whereas tax under section 112A is levied only on the long-term capital gains in excess of Rs.1 lakh@10%. 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 flat rate without any specific threshold exemption in respect of such income.
Suggestion: In the view of above, it is suggested that requisite changes be made in the income-tax utility to provide for rebate u/s 87A in respect of income-tax on long-term capital gains chargeable u/s 112 and short-term capital gains chargeable u/s 111A in line with the relevant provisions of law.
Thanking you,
With Warm Regards,
CA. Piyush S Chhajed
Chairman, Direct Taxes Committee
The Institute of Chartered Accountants of India
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