Big Tax Relief: Section 87A Rebate Now Covers Short-Term Capital Gains!

Big Tax Relief: Section 87A Rebate Now Covers Short-Term Capital Gains!

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Taxpayers, here’s some great news! The Income Tax Department has introduced a significant update that makes claiming the Section 87A rebate easier and more inclusive. The rebate, which was previously not allowed for incomes like short-term capital gains (STCG) taxed at 15%, is now available under certain conditions. Let’s break it down for you:

What Is Section 87A?

Section 87A of the Income Tax Act provides a rebate that can reduce your tax liability to zero if your total income is within a specified limit. It’s a simple and powerful tax relief for eligible individuals.

Eligibility Before the Update:

  • Total income up to ₹5 lakh: Eligible for a rebate of up to ₹12,500 under the old tax regime.
  • Total income up to ₹7 lakh: Eligible for a rebate of up to ₹25,000 under the new tax regime.

But here’s the catch: Special rate incomes like short-term capital gains (STCG) were excluded from the rebate. That’s no longer the case!

What Has Changed?

The latest update changes the game:

  • Taxpayers with total income, including short-term capital gains, up to ₹7 lakh can now claim the Section 87A rebate under the new tax regime.
  • This means even if you have STCG income taxed at 15%, your total tax liability can now be reduced to zero, provided your total income is within the limit.

Key Features of the Update

  • Who Can Benefit? Individuals earning up to ₹7 lakh (total income, including STCG). Applicable only under the new tax regime.
  • How Much Rebate? A maximum rebate of ₹25,000, effectively making your tax liability zero for incomes up to ₹7 lakh.
  • Enhanced Filing Utility: The Income Tax Department has updated its filing utility to include this provision, ensuring a hassle-free experience for taxpayers.

Why Does This Matter?

Scenario Before the Update:

  • Income Composition:
    • Salary Income: ₹4,00,000
    • Short-Term Capital Gains: ₹2,50,000
    • Total Income: ₹6,50,000
  • Tax Calculation:
    • Tax on STCG at 15%: ₹37,500
    • Tax on remaining income: ₹2,00,000
    • Total Tax: ₹39,500
    • Rebate: Not applicable

Scenario After the Update:

  • Income Composition:
    • Salary Income: ₹4,00,000
    • Short-Term Capital Gains: ₹2,50,000
    • Total Income: ₹6,50,000
  • Tax Calculation:
    • Tax on STCG at 15%: ₹37,500
    • Tax on remaining income: ₹2,00,000
    • Total Tax: ₹39,500
    • Rebate under Section 87A: ₹25,000
    • Final Tax Liability: ₹14,500

See the difference? A reduction of ₹25,000 in tax liability!

What Should You Do?

  1. Check Your Eligibility: Ensure your total income, including STCG, is within ₹7 lakh.
  2. Use the Updated Utility: Download the latest version of the Income Tax Department’s filing utility to claim the rebate correctly.
  3. Plan Your Taxes: This is a great opportunity to reassess your tax liability and take advantage of the rebate.

Key Takeaways

The inclusion of short-term capital gains under the Section 87A rebate is a game-changer for taxpayers. If your total income doesn’t exceed ₹7 lakh, you now have the opportunity to reduce your tax liability to zero. This update reflects the government’s commitment to simplifying tax compliance and ensuring equitable benefits for all.

Conclusion

Stay updated, stay informed, and make the most of this new provision. Don’t let tax compliance overwhelm you—this change is here to make things easier. If you have questions or need guidance with tax filing, we’re here to help!

Have queries about this update or tax planning? Let’s discuss!

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