Faulty ITR Utility in Respect of Sec 87A Needs Immediate Alteration I

 ntroduction of Proviso in Section 87A:

The Finance Act, 2023, effective from April 1, 2024, inserted a proviso in Section 87A of the Income Tax Act. The proviso stipulates:

• If the total income of the assessee, chargeable under sub-section (1A) of Section 115BAC, does not exceed Rs. 700,000, the assessee is entitled to a deduction from the income-tax of an amount equal to 100% of such income-tax or Rs. 25,000, whichever is less.
• If the total income exceeds Rs. 700,000, and the income-tax payable on such total income exceeds the amount by which the total income exceeds Rs. 700,000, the assessee is entitled to a deduction from the income-tax of an amount equal to the excess of the income-tax payable over the amount by which the total income exceeds Rs. 700,000.

Implications of the Amended Section 87A:

A bare perusal of the amended Section 87A reveals that taxpayers with a total income of up to Rs. 5 lakhs in the old regime and up to Rs. 7 lakhs in the new regime will receive a rebate of Rs. 12,500 and Rs. 25,000, respectively, thus exempting them from paying any income tax.

Restriction on Long-term Capital Gains:

Sub-section (6) of Section 112A of the Income Tax Act specifies that the benefit of the rebate under Section 87A is not available for long-term capital gains on equity shares or equity-oriented mutual funds taxable at 10%.

No Restriction for Other Special Rate Incomes:

Other than long-term capital gains on equity shares/equity-oriented mutual funds taxable at a special rate of 10% without indexation under Section 112A, no other income taxable at a special rate contains any restriction on the availability of the rebate under Section 87A.

Issue with New ITR Filing Utility:

The new ITR filing utility, uploaded on the income-tax e-filing portal from July 5, 2024, does not allow the benefit of the rebate under Section 87A for various special rate incomes, including short-term capital gains on equity shares/equity-oriented mutual funds taxable at a special rate of 15% under Section 111A of the Income Tax Act.

Conclusion:

The current ITR utility needs immediate correction to align with the provisions of Section 87A. Taxpayers should be allowed the benefit of the rebate for all eligible incomes, ensuring compliance with the Income Tax Act.