KSCAA Urges CBDT to Clarify Rebate under Section 87A on Short-Term Capital Gains (STCG)

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The Karnataka State Chartered Accountants Association (KSCAA) has formally approached the Central Board of Direct Taxes (CBDT) seeking urgent clarification on the denial of rebate under Section 87A of the Income Tax Act for Short-Term Capital Gains (STCG) taxed under Section 111A.

Background of the Issue

Section 87A provides a tax rebate to individuals with lower taxable income, offering relief of up to Rs. 12,500. This benefit is designed to ease the tax burden on small taxpayers and has been extended under the new tax regime as well, particularly under Section 115BAC(1A). However, many taxpayers are now reporting disallowance of this rebate specifically on STCG taxed under Section 111A, despite there being no explicit restriction in the law.

KSCAA’s Stand

The KSCAA has highlighted that while Section 112A explicitly restricts the applicability of Section 87A rebate on specific long-term capital gains, no such clause exists for Section 111A. Therefore, disallowing the rebate on STCG under Section 111A appears to be a result of either processing glitches in the Income Tax Return (ITR) utility or misinterpretation of legal provisions.

Impact on Taxpayers

This denial is not only causing financial stress to genuine taxpayers but also leading to unnecessary litigation and delays in refund processing. KSCAA argues that such inconsistencies go against the spirit of the Taxpayers’ Charter, which promises transparency, fairness, and minimal litigation.

KSCAA’s Key Requests to CBDT

  1. Issue a Clear Circular: Provide a definitive clarification allowing the Section 87A rebate on STCG under Section 111A.
  2. Update ITR Utility: Restore the functionality in the ITR software to permit claiming of the rebate correctly.
  3. Reprocess Previous Returns: Review and revise past intimations where the rebate was wrongly denied.
  4. Ensure Uniformity: Instruct CPC and assessing officers to maintain consistency in processing returns to avoid future disputes.

Conclusion

The KSCAA’s representation aims to protect the interests of small taxpayers and uphold the principles of a fair and efficient tax administration. A prompt clarification from the CBDT will help reduce litigation, ensure accurate tax computation, and strengthen trust in the tax system.

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