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By Nagaraju
- In ITR file
If you’ve received a demand notice from the Income Tax (I-T) department for short-term capital gains (STCG), you’re not alone. Recently, many taxpayers—particularly those with stock market transactions—have been served tax notices demanding payments on their equity gains.
The reason behind this? A misunderstanding of the Section 87A rebate by the I-T department has left taxpayers confused and frustrated. But don’t worry—eTaxMentor is here to help you navigate through these tax complications.
Understanding the Section 87A Rebate and Short-Term Capital Gains
Under the New Tax Regime, taxpayers with a total income of up to ₹7 lakh are eligible for a rebate under Section 87A of the Income Tax Act, which means zero tax liability. However, there’s a catch: the I-T department has recently altered its interpretation of this provision.
For taxpayers who filed their Income Tax Returns (ITRs) before July 5, 2024, many claimed the Section 87A rebate on short-term capital gains from stocks, categorized under Section 111A. However, after July 5, the I-T department updated its filing utility tool, and it now disallows rebates for short-term capital gains (STCG) or long-term capital gains (LTCG) under Section 112A.
As a result, thousands of taxpayers are receiving demand notices, asking them to pay taxes on gains—even if they had previously claimed the rebate when filing their returns.
Why Is This Happening?
The confusion stems from a misinterpretation of Section 87A. While Section 112A clearly states that no rebate is allowed for long-term capital gains from equity, there is no explicit restriction for short-term gains under Section 111A. This legal gray area has resulted in demand notices being issued, even though taxpayers acted according to the law as it stood when they filed their returns.
What Should You Do If You’ve Received a Demand Notice?
If you’ve received a notice, it’s crucial not to ignore it. Here’s how you should proceed:
- Review the Notice: Understand the reason for the notice. Is it related to short-term capital gains or the rebate under Section 87A?
- Seek Professional Help: Given the complexity of this issue, consulting a tax professional is essential to ensure you respond correctly and avoid unnecessary tax payments.
- File a Response: If you believe the notice is incorrect, you can file a response with supporting documents to clarify your position.
How eTaxMentor Can Assist
At eTaxMentor, our experienced team of tax consultants specializes in handling income tax notices, particularly those related to capital gains tax. We can help you:
- Understand the demand notice and why it was issued.
- Determine whether you are liable to pay or if you’re eligible for the Section 87A rebate.
- Assist in filing a response and communicating with the I-T department to resolve the issue effectively.
Stay Ahead with Expert Tax Advice
As tax regulations continue to evolve, it’s more important than ever to stay compliant and avoid unexpected tax liabilities. At eTaxMentor, we offer personalized tax advice—whether it’s filing returns or managing complex issues like capital gains tax.
If you’ve received a demand notice or need assistance with your taxes, don’t hesitate to contact us. Let us handle the complexities, so you can focus on what matters most.
Contact eTaxMentor today for professional tax assistance!