Taxpayers using the new tax regime on the Income Tax portal may miss out on an important exemption due to a recent update. This exemption, available under section 87A of the Income Tax Act 1961, provides tax relief to low-income earners (taxable income less than Rs 7 lakh) in the form of a discount of up to Rs 25,000. Let’s know about it.
Disappointing information has come out for the taxpayer. After the update of the tax-filing utility on the Income Tax portal this month, taxpayers may have to give up valid exemptions of up to Rs 25,000 under the new tax regime. This will happen if they have booked short-term capital gains, as it repeals the Income Tax Act, 1961.
Rebate is a rebate given on income tax, which helps people with low income to reduce their tax. It ensures that they file their income tax returns. As per the changes in the Union Budget 2023, if you opt for the new tax regime and if your taxable income is less than Rs 7 lakh, then you are allowed to claim a rebate of up to Rs 25,000.
What’s the problem?
- The issue arises from the difference in the way the portal calculates the ‘total taxable income’ for exemption eligibility.
- According to chartered accountants, the current system is erroneously including short-term capital gains (STCG) in this calculation.
- This eliminates the exemption for those with STCG, even if their income excluding these benefits is below the limit of Rs 7 lakh.
Why is the problem happening
- Interestingly, taxpayers who filed returns before July 5, 2024, were able to claim the exemption regardless of STCG.
- This inconsistency raises concerns about the compliance of the update with the Income Tax Act, with no information on STCG negating exemption eligibility.
- Moreover, section 111A clearly allows exemption for those having STCG, if their gross total income (excluding STCG) is less than Rs 7 lakh.
Impact on taxpayers
- Many eligible taxpayers with STCG may miss out on the exemption due to portal calculations.
- Taxpayers who do not claim exemptions due to portal error may receive a notice at the end of the year.
- Clarifying or disputing the omission of a waiver can cause unnecessary delays and frustration.
- The Income Tax Department should address the issue and ensure that the portal correctly calculates exemption eligibility based on the provisions of the Income Tax Act.
- Taxpayers in the new tax regime with STCG should be aware of this issue and consult a tax professional if they feel they are eligible for exemption.
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