‘No rebate on special incomes unjust’

Ahmedabad: Addressing a gathering on the Union Budget analysis at the Ahmedabad Management Association (AMA) on Sunday, international tax expert Mukesh Patel said that not allowing any rebate on special incomes is ‘unjust' and ‘illogical'. Union finance minister Nirmala Sitharaman on Saturday proposed zero tax for individual resident taxpayers, only if their total income, inclusive of income taxable at normal rates, is less than Rs 12 lakh.
"Incomes like short-term capital gains from securities and long-term capital gains on non-equity assets should also be eligible for a tax rebate under Section 87(A)," said Patel.
"The department has not changed the law but merely interpreted it in a queer way," said Patel, adding that the FM has extended an unprecedented tax relief of Rs 1 lakh crore. He said that the restructured tax rates will increase voluntary compliances, and personal income tax revenue is targeted to grow by more than 20%.
"No FM or govt has had the courage to provide such a substantial individual tax relief of up to Rs 1,10,000 crore in a single budget. However, there are factors which have played a role in this. In 2021, the income tax collection was Rs 4.87 lakh crore, and 2024-25 income tax collection estimates are Rs 12.57 lakh crore. This is unprecedented growth in income tax collection, and even after providing a relief of Rs 1 lakh crore, govt has projected income tax collection of Rs 14.38 lakh crore in 2025-26, which shows 24.2% growth," Patel said.
He said that the growth in excise-customs collection is 3-4%, while the GST growth is estimated at 11%. "This means people will show higher income now, and such voluntary compliance will push the income tax collection up. Effectively, if a person is earning Rs 24 lakh per year, his/her tax liability is only 12.5%, and it will bring more compliance," he said.
He, however, said that as govt has not included special incomes, people will be forced to take other legal routes to save tax. "It is a dream budget, but some taxpayers will scream. If a person has Rs 8 lakh normal income and Rs 4 lakh income from the stock market, he will be required to pay Rs 80,000 tax, being given only a rebate of Rs 20,000 as per the budget. But actually, he should be given the benefit of Rs 60,000 rebate, and his tax liability should be only Rs 40,000," the tax expert said.
Section 112A of the Income Tax Act specifically bars claiming of rebate under Section 87A for LTCG from equity.
There is no such restriction under Section 111A for STCG on equity and under Section 112 for other LTCG, and therefore, taxpayers have the right to claim a rebate of Rs 60,000 with Section 87A.
"The rebate was introduced to encourage taxpayers to opt for the new tax regime under Section 115BAC. However, govt has not allowed special rate incomes in the calculation of total income, and in such a scenario, people will be tempted to do off-market equity transactions," said Patel.