The Dilemma of rebate U/s 87A: A Short Overview
The IT Act includes a specific carve-out under Section 112A, which states that the rebate is not available to small taxpayers whose income includes Long Term Capital Gains (‘LTCG’) from the sale of listed shares or securities.
However, no such carve-out exists for Short Term Capital Gains (STCG) arising from the sale of listed shares or securities, (chargeable to tax at a special rate of 15% in FY 2023-24). Consequently, the rebate under Section 87A applies to the tax on STCG for small taxpayers provided their Gross Total Income (GTI) is within the specified threshold.
This treatment was consistent even under the old tax regime, where small taxpayers were eligible for a rebate on incomes under the head STCG if their GTI was less than INR 5 lakhs.
From July 5, 2024, the Income Tax Department unilaterally updated its utility, restricting small taxpayers from claiming the rebate under Section 87A against their tax liabilities arising from STCG. This restriction sparked concerns, as it deviated from the earlier provisions allowing such rebates.
The matter was challenged before the Hon’ble Bombay High Court by way of PIL filed by The Chamber of Tax Consultants and in response to the Court’s directions, Central Board of Direct Taxes (CBDT) extended the deadline for revising returns for the financial year 2023-24 to January 15, 2025. The date is now fixed for hearing on 16th Jan 2025. Additionally, the ITR utility was updated to allow small taxpayers to manually input the rebate amount under Section 87A.
This development raises a critical question: while processing these revised returns, will the Central Processing Centre (CPC) allow the rebate under Section 87A for small taxpayers, as per the earlier understanding and legislative intent? The uncertainty surrounding this issue has created unnecessary hassles for small taxpayers, many of whom are unlikely to incur tax liabilities exceeding INR 25,000 and may lack access to professional guidance or the resources to engage in litigation.
Issue of clarification instead of such long lasting litigation rounds would help such small tax payers to take an informed decision.
Let us hope for the favourable outcome from the PIL before Bombay HC which is fixed for hearing on 16th Jan 2023.
