ITR 2024: You May Have To Pay Short-Term Capital Gains Tax Despite Rebate

It’s winding down to the last week of tax filing season and some taxpayers are reporting issues with claiming the rebate available under the Old and New Tax Regimes. The tax department portal is not allowing taxpayers to include short-term capital gains in income when claiming the rebate.

The issue relates to the interpretation of Section 87A of the Income Tax Act, said Arvind Rao, founder of Arvind Rao & Associates.

“When the rebate was increased in the New Tax Regime last year, there was no carve out of STCG from equity. It was assumed that this would be included in overall income when claiming the benefit of the rebate. This was also the case with the Old Tax Regime,” said Rao. Taxpayers must pay tax on long-term capital gains irrespective of rebate.

Here’s an illustration of how this works under the Old Tax Regime: A taxpayer has salary income of Rs 2.5 lakh and short-term capital gains of Rs 2 lakh. Ordinarily, the taxpayer would have to pay 15% tax on the short-term capital gains, but since the cumulative income of Rs 4.5 lakh is within the Rs 5-lakh threshold for receiving a rebate, there is no tax incidence.

However, chartered accountants have reported that after July 5, the department’s tax-filing utility is not allowing taxpayers to include STCG and LTCG when attempting to claim the tax rebate.

“This has begun after an update in July,” said Rao. Taxpayers that filed their returns in June were able to claim the rebate. Now, only those facilities that don’t use the department’s portal, like the GenIT and Winman software, allow taxpayers to claim the rebate, he said.

While some applications have been made to the Finance Ministry to review and correct this issue, for now, taxpayers may have no choice but to pay the tax if they are filing their returns on the tax department’s portal. What’s more, in the event that taxpayers are using other software to claim the rebate, there is a possibility that the tax department could issue tax demands subsequently, said Rao.