While the old utility of income tax filing permitted the claim of Rs 25,000 worth of rebate, the altered utility — updated on July 5, 2024 — declined it, without any amendment in the Income Tax Act, 1961.

After an updation of tax-filing utility on the income tax portal this month, taxpayers are being forced to give up a valid rebate of up to Rs 25,000 under the new tax regime if they have booked short-term capital gains, which overrides the Income Tax Act, 1961.

A rebate is a waiver given on income tax to help low-income earners reduce their taxes, which ensures that they file their tax returns. As per the Union Budget 2023 change, individuals opting for the new tax regime are permitted to claim a rebate of up to Rs 25,000 if their taxable income is below Rs 7 lakh.

The anomaly is caused by a different perception of what is “total taxable income” and needs to be corrected as it affects hundreds of low-income earners, say chartered accountants.

Discovering the change, Mayank Mohanka, Founder Director at TaxAaram India, says, “We are witnessing this peculiar trend under the New Tax regime, wherein those, whose net income is below Rs 7 lakh aren’t being able to claim the rebate of Rs 25,000 if they have booked a short-term capital gains (STCG) of 15 percent.”

Surprisingly, this rebate was available for returns filed before July 5, 2024.

Updation in utility, rebate declined

The rebate was permitted on income earned in FY 2023-24. Tax experts told Moneycontrol that returns filed in AY 2024-25, up to July 5, have been permitted to claim this rebate, despite booking short-term capital gains.

After the income tax utility was updated (July 5, 2024), we aren’t able to claim the rebate. The interpretation made by the relevant officer is erroneous as the Income Tax Act or any amendment doesn’t mention that all special income claimed will nullify the rebate.

As per section 111A, even if you have booked STCG, where the gross total income is less than Rs 7 lakh, you could still claim the rebate.

Only under Section 112A, where the mention of long-term capital gains tax of 10 percent without any indexation has been claimed, a clause has been inserted claiming that the 87A rebate wouldn’t be permitted.

~Navneet Shukla