Karnataka State Chartered Accountants Association (KSCAA) has raised concerns with the Central Board of Direct Taxes (CBDT) regarding the disallowance of rebate under Section 87A on Short Term Capital Gains (STCG), particularly those taxed under Section 111A. While Section 87A aims to provide relief to lower-income individuals, and the new tax regime under Section 115BAC(1A) extends this, taxpayers are facing disallowance of this rebate on STCG, leading to financial hardship and unnecessary litigation. KSCAA argues that unlike Section 112A which explicitly restricts rebate on certain long-term capital gains, Section 111A has no such restriction. The association believes the disallowance may be due to processing errors or misinterpretation, causing inconsistency and violating the Taxpayers’ Charter. KSCAA requests the CBDT to clarify and instruct allowing the Section 87A rebate on STCG (excluding Section 112A), restore the ITR utility, revise past intimations denying the rebate, and ensure consistent return processing to reduce taxpayer burden and enhance trust in the tax system.
Karnataka State
Chartered Accountants Association (R)
To,
Shri Ravi Agarwal,
Chairperson,
The Central Board of Direct Taxes
Date: Wednesday, 30 April 2025
Ref No: 013/2024-25
SUBJECT: REPRESENTATION REGARDING DISALLOWANCE OF REBATE UNDER SECTION 87A FOR SHORT TERM CAPITAL GAINS
The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’), established in 1957, is a premier association representing the Chartered Accountancy profession in Karnataka with prime focus on upholding professional ethics and advancing the interests of the business community. KSCAA has consistently contributed to the community through seminars, workshops, representations, and consultations on policy matters impacting trade, commerce, and industry.
Over the years, we have raised various concerns about the challenges and hardships faced by taxpayers and Chartered Accountants, along with proposed solutions. We hereby seek to highlight specific hardships encountered by assessees, taxpayers, and professionals with respect to disallowance of rebate under Section 87A of the Income-tax Act, 1961 (in short ‘the Act’) on Short Term Capital Gains (STCG).
INTRODUCTION
- Section 87A of the Act was re-introduced to provide a rebate of up to ₹2,000 from the tax payable by individual assessees in the lower-income bracket (total income not exceeding ₹5 lakh). This measure was aimed at ensuring equitable taxation and providing relief to small taxpayers.
- The Finance Act, 2019 enhanced the rebate amount to ₹12,500 while retaining the income threshold at ₹5 lakh, thereby further extending relief to the same target group in line with the Government’s intention to support economically weaker sections.
- From Assessment Year (AY) 2024-25 onwards, under Section 115BAC(1A) of the Act (new tax regime), a resident individual whose total income does not exceed ₹7 lakh is eligible for a full rebate of income tax payable. This aligns with the broader policy objective of easing the tax burden on the middle-income group.
Karnataka State Chartered Accountants Association (R)
ISSUES FACED
Despite the clear legislative intent behind Section 87A, taxpayers have been receiving intimations under Section 143(1) of the Act where rebate under Section 87A has been disallowed on STCG, particularly on income taxed under Section 111A. This has resulted in:
- Unintended financial hardship, particularly for taxpayers with small demands raised on limited capital gains.
- Costly litigation for minor disputes which erode taxpayer confidence and significantly impact small assessees.
- Administrative inefficiencies for both taxpayers and professionals who must engage in rectification or appeal processes.
- Moreover, the inconsistency in return processing, potentially due to a change in the ITR utility or CPC’s internal stand, as also acknowledged in certain High Court observations has introduced uncertainty into the tax system. This unpredictability is fundamentally against the spirit of the Taxpayers’ Charter, which emphasizes fairness, transparency, and accountability.
REPRESENTATION
A combined reading of Section 87A and Section 115BAC(1A) suggests that under the new regime, the rebate should apply to the total income tax liability, without explicit restriction on tax charged at special rates except where specifically excluded.
Section 112A clearly prohibits rebate against long-term capital gains arising from the transfer of certain equity-related instruments. However:
- No such restriction exists under Section 111A, which deals with STCG on equity shares and units subject to STT.
- If the legislature had intended to bar the application of rebate under Section 87A against STCG, a similar proviso would have been incorporated in Section 111A.
It appears that the disallowance by CPC is either due to an oversight in automated processing or a misinterpretation of the statute, leading to inconsistency between the law and its implementation.
Karnataka State Chartered Accountants Association (R)
We also draw attention to several favorable appellate rulings by Commissioners (Appeals) and Joint Commissioners (Appeals), where the rebate under Section 87A has been allowed on short-term capital gains. These rulings reinforce the legitimacy of taxpayers’ claims and highlight the need for a consistent and lawful approach in the processing of such returns.
OUR REQUEST
In light of the above, we respectfully request to:
- Clarify and issue instructions to allow the rebate under Section 87A of the Act from tax payable at special rates, except tax levied under Section 112A, both under the old and new regimes, where applicable.
- Restore the utility as it was before 05.07.2024, allowing Section 87A claims.
- Direct CPC to withdraw or revise intimations issued under Section 143(1) of the Act for AY 2023-24 where the rebate was erroneously denied.
- Consider the cost of litigation and the disproportionate burden imposed on taxpayers for low-value disputes arising from automatic disallowance of rebate.
- Stop implementation of Section 143(1) intimations denying the rebate claim.
- Reinforce consistency in return processing by updating the ITR utility and internal CPC checks in line with statutory provisions and judicial guidance, thereby avoiding future errors and uncertainty.
We trust in your commitment to upholding the principles of fairness, justice, and efficient tax administration. In conclusion, we urge your immediate and kind consideration of this matter, which impacts a large number of honest taxpayers and professionals. A fair and uniform resolution will not only reduce administrative burden and litigation but also uphold the trust placed by taxpayers in the fairness of India’s tax administration. We believe that timely clarification will reinforce confidence in the tax system and encourage greater voluntary compliance. Addressing this issue proactively will also reflect the department’s dedication to taxpayer-centric governance and policy transparency.
Karnataka State Chartered Accountants Association (R)
In light of the difficulties encountered, we, the members of the Karnataka State Chartered Accountants Association, respectfully urge you to consider our request on behalf of the entire Chartered Accountants community and the trade and industry in Karnataka.
Thanking you,
Yours sincerely,
For Karnataka State Chartered Accountants Association ®
CA Vijaykumar M Patel CA Praveen S Shatter CA Babitha G
President Secretary Chairperson,
Representation Committee
CC:
1. Nirmala Sitharaman, Hon. Union Minister of Finance and Corporate Affairs, Government of India
2. Shri Pankaj Chaudhary, Union Minister of State, Finance
3. Shri Arvind Shrivastava, Hon’ble Revenue Secretary
4. Shri Ganapati Bhat, PCCIT, Karnataka and Goa
5. Director General of Income Tax (Systems) (OSD)
6. DGIT(Systems)(OSD), Bengaluru
7. Commissioner of Income Tax, CPC, Bengaluru
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