Taxpayers receive Tax Demand Notices for Short Term Gains

The income tax department has issued demand notices to several Gujarat taxpayers regarding their tax liability on short-term capital gains, mainly from stock market transactions.

The I-T department had given the facility for submitting ITR (income tax returns) for such earnings until July 4, allowing taxpayers to receive the tax refund under Section 87A of the Income Tax Act.

Many tax returns filed before July 5 were accepted and processed. However, a large number of taxpayers are now receiving notices to pay taxes on their short-term equity gains.

Tax experts point out that, while the new regime makes total income up to Rs.7 lakh tax-free through the rebate under Section 87A, the department has read it differently, resulting in taxpayers receiving these tax demand notices.

According to tax experts, the Proviso to Section 87A, which raised the total income threshold from Rs.5 lakh to Rs.7 lakh and the eligible rebate from Rs.12,500 to Rs.25,000, was implemented to encourage taxpayers to opt for the New Tax Regime under Section 115BAC.

As per a tax expert, “taxpayers have been denied the benefit of a rebate under Section 87A of the Income Tax Act for short-term capital gains (STCG) from equity under Section 111A and for long-term capital gains other than equity under Section 112, with no logical rationale. Even taxpayers who filed their returns prior to the utility change received demand notices from the department. This is unjust and inequitable, and it is critical that the Central Board of Direct Taxes (CBDT) intervene in the dispute to alleviate the hardship that taxpayers have had as a result of an interpretation that lacks statutory support.”

A chartered accountant stated, “This is an unprecedented circumstance in which the income tax department has sent notices to thousands of individuals based on interpretation, despite no change in the law. The majority of them are salaried taxpayers who choose to file returns under the new tax regime, and 90% have short-term capital gains from equity, either through trading or an IPO. Now, these people have to pay taxes.”

Chairman of the Gujarat Chamber of Commerce and Industry’s (GCCI) direct tax committee, Jainik Vakil stated, “Section 112A of the I-T Act expressly prohibits claiming a rebate under Section 87A for LTCG from equity. There is no such restriction under Section 111A for STCG on equity and Section 112 for other LTCG, hence taxpayers have appropriately claimed a rebate against this income. The IT department modified the utility for filing income tax returns on July 5. As a result of this change, the refund under Section 87A was no longer available for STCG under Section 111A on equity or LTCG under Section 112.”