Taxpayers Win- Case for Rebate u/s 87A on Short Term Capital Gains

Arjuna (Fictional Character): Krishna, I recently heard about a case where rebate under Section 87A was allowed on short-term capital gains.

Krishna (Fictional Character): Yes, Arjuna. It’s a noteworthy Beena Manishbhai Fofaria V/s CIT(Appeals) case that clarifies the application of Section 87A, especially after the amendments brought by the Finance Act, 2023. This ruling is a beneficial for many taxpayers.

Arjuna (Fictional Character): Krishna, what was the issue in the case?

Krishna (Fictional Character): The case revolved around a taxpayer who filed her return for the Financial Year 2023-24, declaring total income of Rs.6,93,260. Her income included:

Short-term capital gains (STCG): Rs.65,066

Long-term capital gains (LTCG): Rs.1,38,049

She claimed a rebate of Rs.20,010 under Section 87A because her total income was under Rs.7,00,000. However, the Centralized Processing Centre (CPC) restricted the rebate to Rs.10,250, disallowing the rebate on STCG. This led to a reduced refund amount, prompting the taxpayer to file an appeal. This issue has arisen for most of the taxpayers who have filed their return under New Tax Regime under 115BAC. There was a lot of discussion and confusion among lot of taxpayers whether rebate would be available or not.

Arjuna (Fictional Character): Krishna, how did the taxpayer defend her claim against the Income Tax department?

Krishna (Fictional Character): The taxpayer made several strong arguments citing the Finance Act, 2023, which allows rebate on total income, excluding only LTCG taxed under Section 112A. Since STCG is part of total income, it qualifies for the rebate if the total income doesn’t exceed Rs.7,00,000. Whereas Centralized Processing Centre (CPC) while processing the return had not allowed the rebate on Short Term Capital Gains, which was contrary to the law.

Arjuna (Fictional Character): Krishna, what was the final decision made by the authority?

Krishna (Fictional Character): The CIT (Appeals) ruled in favour of the taxpayer. Here’s what the decision stated:

The Finance Act, 2023, permits rebate on total income (excluding LTCG under Section 112A) if the total income is within Rs.7,00,000. The restriction by CPC was incorrect. The ruling confirms that short-term capital gains, unlike long-term capital gains under Section 112A, are eligible for rebate if the total income is under Rs.7,00,000.

Arjuna (Fictional Character): What should taxpayers learn from this?

Krishna (Fictional Character): Taxpayers should always double-check the rebate calculations in CPC notices against your filings and should familiarize themself with legislative changes to ensure they claim eligible benefits. Taxpayer should keep a close watch on what department does in future regarding this issue of rebate. With proper understanding and action, taxpayers can ensure they receive every benefit they’re entitled to.