Income Tax Portal Issues: Rebate Denied for Short-Term Capital Gains – What You Need to Know

Recent updates to the income tax portal have led to a situation where taxpayers with short-term capital gains are being denied a rebate of up to Rs 25,000 under the new tax regime. This development appears to contradict the provisions of the Income Tax Act, 1961.

The rebate, which was designed to aid low-income earners by reducing their tax burden, allows individuals with taxable income below Rs 7 lakh to claim up to Rs 25,000 under Section 87A. However, the updated tax-filing utility now prevents those with short-term capital gains from receiving this rebate, creating an issue for many taxpayers.

Experts in tax law have pointed out that the discrepancy stems from a misinterpretation of what constitutes “total taxable income.” According to the previous guidelines, individuals such as Rajesh*, with a total income of Rs 7 lakh that includes both salary and short-term capital gains, were eligible for the full rebate. The new utility, however, only applies the rebate to salary income and excludes short-term capital gains.

In contrast, taxpayers like Surbhi*, whose total income exceeds Rs 7 lakh but includes a salary income below this threshold, are mistakenly receiving a partial rebate. This error is attributed to a faulty interpretation of the updated system.

The change is causing concern that many taxpayers might face issues or receive notices later in the year. The Income Tax Act has not been amended to specifically exclude rebates for those with special rate incomes, such as short-term capital gains.

A tax expert noted that while the rebate was available before the update, the new restriction on short-term capital gains seems to be an incorrect application of the law. Short-term capital gains are taxed at a concessional rate of 15 percent, which differs from the standard tax slab rates.

The situation is further complicated by technical issues with the income tax portal, potentially causing additional challenges for taxpayers trying to file their returns.