I only have salary income and some capital gains. My total income was below ₹7L, so I selected the new regime because of lower tax. Now I receive a demand notice from the ITD asking me to pay more tax. What should be done?
As the ITRs filed for AY 2024-25 are being processed, many taxpayers are receiving demands despite filing their returns on time and paying their entire tax liability.
A lot of these demands are being raised against taxpayers whose total income is below ₹7L and have claimed the tax rebate under section 87A.
Why is this happening?
See, the Income Tax Utility came up with an update on 5th July where this rebate u/s 87A was disallowed on special rate incomes under the new tax regime. This includes incomes like short-term capital gains (STCG) from stocks and equity mutual funds and long-term capital gains (LTCG) from most type of capital assets.
Earlier, a rebate of up to ₹25,000 was available under the new regime if your total income (including income taxed at special rates) was below ₹7 lakh. However, this rebate is now limited to only income taxed under normal slab rates like your salary, interest, etc.
The detailed calculation is covered in this thread: No tax rebate u/s 87A allowed on short term gains from stocks and equity MFs
What does this mean for you?
Anyone who filed before this change was implemented by the ITD, whether through Quicko (before we incorporated the change in our product) or any other platform, may receive a demand if they claimed the rebate on special rate incomes such as STCG from stocks or MFs.
What should you do?
As this was a policy change from the ITD’s end, there’s no other option but to pay the demand and settle the tax dues. Here are the steps for your reference:
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Log in to the income tax portal
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Go to ‘Pending Actions’
- Select ‘Response to Outstanding Demand’
- Lastly, pay the tax dues.
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