Those taxpayers who filed their income tax returns of March 2024 and had income from capital gains are now receiving notices asking them to pay additional tax on short term gain or shares and Long-term capital gains other than shares . What has happened that nearly all these taxpayers filed incorrect returns, or did not pay the correct tax? Is it possible that all of them were wrong? That seems unlikely. Let’s see what exactly has happened that has resulted in such a large number of notices of additional tax payments in the history of income tax law.
This matter is related to Section 87A of the Income Tax Act, under which taxpayers with total income up to ₹ 7 lakh are given an exemption of ₹25,000 from their tax liability. Because of this section 87 A, they either don’t have to pay any tax or pay a reduced amount of tax. Following this provision, these taxpayers filed their returns of Income , and even today, many experts believe that no demand should be raised in this regard. So, what suddenly happened that these taxpayers are now being burdened with tax payment notices?
Until July 5, 2024, the department’s opinion was in line with the above mentioned position, and the utility on the income tax portal was also working on this interpretation. All the tax software in the country were functioning on the same basis. But on July 5, 2024, the department suddenly changed its opinion and interpretation of Section 87A. The exemption of ₹25,000 from the total tax liability for incomes up to ₹7 lakh was no longer applicable to certain types of income, such as short-term capital gains (STCG) on shares and long-term capital gains (LTCG) from assets excluding shares i.e. Land , Building etc. Since this exemption was now removed for these incomes, these taxpayers are now receiving notices to pay additional tax on those earnings.
Now, think about this situation. Will the country’s income tax law be based on the department’s changing interpretations over the time specially midyear when lakhs of Taxpayers have already filed their returns. ? This is a matter for serious consideration. When this section 87A was introduced in its revised form, no such interpretation or spirit of the law was expressed anywhere by anybody. When these returns were being filed this year, the department’s stance was in favour of the taxpayers, which is why the department’s utility was designed based on that interpretation. Even today, according to most experts, the department’s current stance is incorrect and this action may be based on an erroneous interpretation of the law. There was no change in the law on July 5, 2024, nor was any new notification issued on that day. So, what is the basis for this sudden change in the interpretation of the law? Was the interpretation incorrect before July 5, and if so, the responsibility should be fixed on the department, not on the taxpayers.
The Government must pay attention to the fact that such actions create distrust in the entire system, especially among small taxpayers. These are all small taxpayers because Section 87A applies only to those with an income of ₹7 lakh, and therefore, these small taxpayers should be given relief.
Author Bio
My income is below 7 lakhs. Last financial year I had a Capital Gain of Rs. 23000 from STCG (Equity Shares). After receiving two demand notices I have paid Rs.3830 as tax on the same. Now, after knowing that a PIL has been filed at the Gujarat High Court, is there any possibility that I will get back the money? I think this was a cruel action by the Income Tax Department.