In April 2014, before the BJP formed the government, Arun Jaitley, publicly demanded that the income tax exemption limit be increased from ₹2 lakh to ₹5 lakh. But later on, in interim Budget 2019 announced full rebate of tax up to 5 lakhs. The central government further raised this limit to make personal income tax levy more practical, logical and rational.
At present Section 87A of the Income-tax Act, 1961 provides rebate of income tax for resident individuals up to 12 lakhs P.A under new regime of taxation and further standard deduction of Rs 75000 P.A to employees. Thus, salaried employees under new regime get tax rebate up to 12.75 lakhs. The total tax rebate is Rs .63000 P.A which is a handsome amount for small tax payers.
Over the years, Government has been taking care for middle class income population also. it has paid a good return in terms of increase in consumption pattern and investment for new entrepreneurs in terms of equity participation by them in public issues, share market, mutual funds. Despite various odd factors of war, flood, unfavorable world economic condition, these small investors have kept our share market and economy in growth mode.
From FY 2025 -26 there has been amendment in section 87 A and kept special income as not eligible income for the purpose of computing rebate. This will impact small taxpayers badly. This can be understood through examples how different situation emerges on investment of Rs one crore.
In case a small tax payer invests Rs one crore in FD , he will get interest of Rs 6.5 lakhs or 7 lakhs maxim and total income is tax-free on getting rebate under section 87 A.
In case intraday share trading is done on investment of Rs one crore , say there is a gain of Rs 10 lakhs on return of 10 % P.A from share market then the same will be treated as business income. The total income will be tax free as he will get rebate under section 87 A.
In case a small tax payers invest 50 % in equity and 50 % in shares then say there is return of 10 % the same will be short term gain. Then he has a total income of Rs 8.50 lakhs then he has to pay tax on Rs 5 lakhs @20 % + surcharge. He will not get any rebate under section 87 A. He has to pay Rs 1.04 lakhs P.A . In case rebate is allowed still exchequer will get tax of Rs .41000 P.A.
In case Rs one crore invested in small business and there is a gain of Rs 10 lakhs as income from business income. Then he will get full rebate and no tax payment.
A large tax payer invests Rs one crore in share market but since he is a large tax payer then he will go for long term gain. After one year say he earns Rs 10 lakhs on return from share market @10 % as gain then his tax liability will be 12.5 % of gain + surcharge which will be Rs143000 against Rs 420000 in case of other income. He is a big gainer in share trading as a investor.
Conclusion:
The government should give rebate of Rs 63000/ to all taxpayer having income less then Rs 12 lakhs to maintain equality. Otherwise, it will badly hit small taxpayers who has income above Rs 3 lakhs and has to pay tax who are basically salary class, woman, retired person who sought passive income from share market, mutual funds etc. to maintain their livelihood.
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S.K.Periwal
Com , F.C.A, C.S
Director: Tax corner India LLP
126 AB, Nirman Nagar -Jaipur
Mobile no 9119337201
Author Bio
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Artical is very judicious and commendable.
will you please advise the legal and updated status in case the CPC Banglore raise a demand instead of allowing rebate of 87 A ON SPECIAL RATE INCOME and Demanded amount deposited. but ITR A.Y. 2024_25 not processed so far. How I should proceed so that my legitimate Rebate u/s 87A is allowed.