Some time ago, a video of Finance Minister Nirmala Sitharaman went viral in which a trader was telling her how the government is earning more revenue from brokers operating in the stock market. At the same time, the common man also has to pay two types of taxes, short-term and long-term, on capital gains earned in the share market. Recently, a big update came on the Income Tax Portal and many taxpayers started receiving short-term capital gains notices. Let us understand what this whole issue is all about and can we get relief in the budget?
There was an update in a utility filing on the Income Tax portal on July 5. Following this, taxpayers started facing difficulties in claiming tax rebate on short-term capital gains under Section 87A of the Income Tax Act. This tax rebate was up to Rs 25,000. The benefit of this tax rebate was also available under the new tax regime.
What is an income tax refund?
Section 87A of the Income Tax Act provides for an income tax rebate for low-income earners. This works to reduce their income tax burden and also ensures that they file their ITR, so that they can come under the government’s tax net.
In the General Budget 2023, the government provided a benefit to taxpayers who switched to the new tax regime. Under this regime, tax slabs were made zero tax up to Rs 3 lakh, 5 per cent tax between Rs 3 and 6 lakh and 10 per cent tax between Rs 6 and 9 lakh, but if the taxpayer’s income is less than Rs 7 lakh, then he/she received a tax rebate of up to Rs 25,000 under Section 87A.
This is exactly what the government has done in the old tax regime. Even in the old system, the limit of tax-free income is Rs 2.5 lakh, but the government gives an income tax rebate of up to Rs 5 lakh.
What is the change in taxable income?
Now the problem in this entire system came to light when after July 5, many taxpayers started writing on social media etc about the difficulties they were facing in claiming tax refund under the new tax regime. According to Money Control and ET news, till July 5, when a taxpayer was calculating his total taxable income under the new tax regime, his short-term capital gains were also included in the total taxable income and if it was more than Rs 7 lakh, then he got the benefit of tax refund.
Now what is happening is that even if a taxpayer’s total taxable income is less than Rs 7 lakh, then he gets the benefit of income tax exemption only on his basic income. Income falling under short-term capital gains or any other special tax category is not included in the total taxable income and the income tax payable on it is not offset in exchange for a tax refund.
Will there be a solution in the budget?
This time, this will be the first Modi Budget 3.0, which is special in many ways. The reason is that many economic experts from different quarters have asked the government to reduce the tax burden on the public and increase demand in the market. In view of the upcoming assembly elections in many states, the government is expected to provide relief to the middle class. In such a situation, there are high chances that the government will increase the tax exemption limit or the scope of rebate in the new tax regime.
