ITR File: Under the new tax regime, Section 87A exemption is available only on slab-rate income and not on income taxed at special rates, even if the total income is less than Rs 12 lakh.

Section 87A of the Income Tax Act

Capital Gain: Filing taxes is a financial part of life for taxpayers. People often calculate their income. A taxpayer who earned ₹8.15 lakh in short-term capital gains from listed shares and had no other income wanted to know why the income tax portal was charging a 20% tax despite his total income being less than ₹12 lakh under the new tax regime.

taxpayer's question

A taxpayer asked on the 'Ask Wallet Wise' website, "I have earned a short-term capital gain of ₹815,000 by selling listed shares within 8 months. I have no other income. Since my total annual income is well below the tax-free limit of ₹12 lakh under the new tax regime, I believe my tax liability should be zero due to the Section 87A exemption. However, the income tax portal is calculating tax at a flat rate of 20%. Is there an error in the portal?"

What advice did the expert give?

In fact, under Section 87A of the Income Tax Act, the new tax regime provides a tax exemption of up to Rs 60,000 if the taxpayer is a citizen of India and his income taxable at slab rates does not exceed Rs 12 lakh. Under the new tax regime, the exemption under Section 87A is available only on the tax on normal income. This exemption is not available on income taxed at special rates, even if the total income including such special income does not exceed Rs 12 lakh.

According to experts, there's no glitch in the portal. If you're a taxpayer as a citizen of the country, the portal correctly calculates tax on short-term capital gains from listed shares at a flat rate of 20% after the initial exemption limit of ₹4 lakh. If you're a non-resident (NRI), you'll have to pay a 20% tax on all short-term capital gains, as there's no provision for setting off against normal income, unlike the nominal exemption for short-term capital gains.