Summary: The Institute of Chartered Accountants of India (ICAI) has requested the Central Board of Direct Taxes (CBDT) to allow rebate under Section 87A of the Income Tax Act on short-term capital gains taxed under Section 111A and long-term capital gains taxed under Section 112. Currently, the income tax utility does not permit the rebate for these capital gains, which contradicts the law. Section 87A allows a rebate for resident individuals with income below specific thresholds, but a restriction exists only for long-term capital gains under Section 112A. The ICAI argues that no such restriction is mentioned for capital gains under Sections 111A and 112. Denial of this rebate causes hardship to taxpayers, as these gains are taxed at flat rates of 15% and 20%, respectively, without exemptions. ICAI suggests amending the tax utility to align with the legal provisions, ensuring the rebate is granted for capital gains under Sections 111A and 112.
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 <[email protected]>
Tue 16-07-2024
To: [email protected]
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
