Introduction
Understanding the provisions related to tax rebates is crucial for effective tax planning. This blog is all about the rebate available under Section 87A of the Income Tax Act, 1961, particularly for individuals opting for the New Regime under Section 115BAC.
Rebate Under Section 87A: Overview
For those opting for the New Regime under Section 115BAC, the following points must be considered:
1)Normal Tax Rates: The rebate is applicable only on income chargeable to tax at the normal rates as per Section 115BAC.
2)Exclusions: The rebate does not apply to special rate income, including:
- Short-term capital gains under Section 111A
- Long-term capital gains under Sections 112 and 112A
- Other special rates under Sections 115B, 115BBE, 115BBC, and 115BBF.
3)Short-Term Capital Gains: It is important to note that if short-term capital gains are taxed at normal rates (under Section 111), then rebate can be claimed.
Filing Returns and Processing
Common Issues Faced by Taxpayers
Many tax practitioners submitted returns under Section 115BAC that included special rate incomes prior to the filing deadline (July 31, 2024). Initially, the ITR utility permitted rebates on these incomes, leading to significant confusion among taxpayers.
Intimation Under Section 143(1)
After processing the returns, taxpayers might receive an intimation under Section 143(1) of the Income Tax Act, which outlines discrepancies in their filings. This intimation may state:
- Denial of the rebate for special rate incomes
- A demand for payment of taxes due, resulting from the ineligibility for the rebate
Implications for Assessees
- Inability to Switch Tax Regimes:
- Taxpayers who fail to file Form 10-IE before the due date (July 31, 2024) cannot switch back to the old tax regime. This limitation means they are obligated to comply with the demand for payment as specified in the intimation.
- Responding to Intimations:
- If you receive an intimation under Section 143(1), it is essential to respond within 30 days from the date of issuance. Neglecting this may result in further complications and potential penalties.
- Avoiding Unnecessary Scrutiny:
- Some taxpayers might consider reducing their income below ₹3,00,000 to utilize the basic exemption limit. This strategy poses risks, as it may attract scrutiny from the Income Tax Department and lead to notices for further clarification.
Conclusion
In conclusion, taxpayers opting for the New Regime under Section 115BAC must be acutely aware that the rebate under Section 87A is not applicable to special rate incomes. After the processing of returns, those receiving an intimation with a tax demand must fulfill this requirement, as options for contesting or reverting to the old tax regime are highly restricted..
