There was a recent change made by the income Income Tax Department that has left several tax payers in a blind.
So, if you were earning a total income of up to ₹7L, you were eligible for a tax rebate u/s 87A under the new tax regime. You could claim a maximum rebate of ₹25,000 which would bring your tax liability at normal slab rates to zero. This rebate was never allowed for LTCG from stocks and equity MFs, however STCG was eligible.
For example, if you have say ₹5L taxable salary and ₹2L in STCG, your tax liability would come to:
Tax on 5L at slab rate = ₹10,000
Tax on 2L at 15% = ₹30,000
Total = ₹40,000
Now, as the total income is below ₹7L, you’d be eligible for the ₹25,000 rebate and hence you’d end up paying ₹15,000.
But, as per the new calculation, this rebate has been disallowed on any kind of special rate income which would include the STCG from shares and equity MFs.
Hence, the new calculation would be:
Tax on 5L at slab rate = ₹10,000
Tax on 2L at 15% = ₹30,000
Total = ₹40,000
Rebate allowed = ₹10,000
Tax payable = ₹30,000
So, now, you’ll have to pay ₹30,000 as taxes.
Here are are few points to understand:
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The rebate u/s 87A has been disallowed for special rate incomes under the new regime. But, the rebate of ₹12,500 allowed under old regime will continue to include short-term capital gains if your income is below ₹5L.
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Special rate incomes includes any income which is not taxed as per the slab rate. For example LTCG and STCG from stocks and MFs, etc.
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Only income taxed at slab rate will be considered for determining eligibility for the rebate. For instance, if someone has ₹6L salary and ₹5L STCG, a rebate will still be available on the salary income despite the total income being more than ₹7L.
Those who have already filed the return before this update may receive a demand later on once the ITR is processed. As this is a policy change, you’ll have to pay the differential amount whenever the demand is raised.